McColl’s has been saved, but the real work starts now for Morrisons

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So Morrisons has beaten the Asda-owning Issa brothers to land control of McColl’s Retail Group.

In times gone by, such a shootout between two supermarket giants for a 1,100-strong national convenience chain would have been viewed as a key strategic battle, that could shape the future of one and significantly dent the other. But the truth is the woes suffered by McColl’s over recent years means this isn’t the case. Just because Morrisons has fought off the challenge from the Issas’ EG Group doesn’t mean we can declare Morrisons the winner – in many ways, the hard work starts now.

The Morrisons deal appears to secure the immediate future of McColl’s stores, the jobs of its 16,000 employees and its pension fund, but it will be interesting to hear what Morrisons’ plan for the business is in the long term. There are reasons why McColl’s has arrived in this crisis position, and while the immediate pressure from lenders has been removed, business as usual is not an option if it wants to make it work long term.

McColl’s staff and pension holders will surely be breathing a sigh of relief that the banks, which were owed upwards of £100m, ultimately rejected the EG proposals. That deal would appear to have included leaving the pensions to be bailed out via the Pension Protection Fund, and it’s not clear how it planned to supply the stores. EG currently works with several suppliers for its UK forecourt business and is currently working through how this will ultimately be handled by Asda. But as yet, Asda has little experience supplying the convenience market. McColl’s is a business with experience in supply chain disruption, firstly with the collapse of former supplier P&H in November 2018, and indeed over the duration of its subsequent relationship with Morrisons.

As the incumbent wholesaler, the Morrisons takeover should lead to the least impact on supply. The conversion programme of stores from the McColl’s fascia to Morrisons Daily, which had been paused in recent weeks as McColl’s neared collapse, can resume. There are currently around 200 stores carrying the Morrisons branding with a target of 450 by November. These stores are the top performers in the group and the jewels in the crown – but McColl’s problems remain myriad.

Former McColl’s CEO Jonathan Miller told The Grocer last year he believed there are many more sites in the estate beyond this 450 that could prosper as Morrisons Daily stores. However, among the wider convenience community, there are deep concerns about the viability of what is perceived to be a long tail of underperforming stores, many of which are essentially newsagents rather than convenience stores, and at least 200 stores which are understood to be loss-making.

While the Morrisons deal today includes all stores, so staff are not at risk of losing their jobs without any compensation, it is hard to envisage Morrisons maintaining the estate in its current form. Stores will surely be sold off, although rivals will have most interest in the ones Morrisons intends to keep, and others will be sold to be converted into non-grocery outlets or for housing.

Morrisons will be seen as McColl’s saviour today, but it’s worth noting it is not without blame for the perilous position it found itself in. There have been service and availability issues ever since supply was switched to Morrisons, which continued through the pandemic. The Grocer understands that McColl’s has previously reached out to rivals to source stock.

Morrisons may take this opportunity to restructure its convenience supply chain to a more efficient model, but again this can’t happen overnight, and will inevitably involve the disposal of large chunks of stores.

Yes, we can celebrate today that a retail tragedy has been averted. But there is an undeniably long, and potentially difficult, rehabilitation period ahead.