On Thursday, McColl’s posted a £500,000 pre-tax loss for the six months to 24 May. As bottom lines go, this doesn’t look great for a retailer that seems perfectly placed to capitalise on the coronavirus-driven shift to convenience. Dig a little deeper though, and it’s clear that it is certainly not all doom and gloom. The interims tell us plenty about both the opportunities and challenges facing McColl’s, and indeed the convenience sector more widely. Here are the key points in its results.
Total sales fell 1% to £604.8m over the latest six-month period. But this isn’t down to fewer shoppers – the retailer attributes it to the closure of some 65 stores. This is all part of a ‘store optimisation’ programme, announced prior to the pandemic, which will see McColl’s reduce its estate by 300 to around 1,100 outlets.
The retailer had originally intended to close more than 65 stores during the year, but CEO Jonathan Miller told The Grocer it had paused this process at the height of the Covid crisis to ensure more people had access to necessary food and drink. The process has recently kicked off again and, despite a delay of a few months, McColl’s still expects to complete the programme within its original three-year timeframe.
When looking at like-for-like sales, the figures are much more promising. Over the half, like-for-likes were up 8.3% and into double digits for the second quarter. McColl’s said it outperformed the convenience sector in that second quarter period by more than four percentage points.
Cost of sales
There is no doubt that customers, many of whom are new to the retailer, have flocked to McColl’s stores during the crisis. Miller is confident this will cement its position as a key neighbourhood convenience retailer for the future.
These extra sales, however, have come at a price. Of course, there were the extra costs of introducing PPE, extra staff hours to manage queues and implementing social distancing measures – all of which amounted to around £2m. McColl’s said this sum was effectively covered by the business rates holiday offered by the government to retailers, and the extra sales.
But there was further impact on the bottom line as the new range mix – aimed at offering more dry grocery lines, ingredients for scratch cooking and bigger packs and more multipacks – has come with reduced margin compared with the many premium and impulse lines that were previously the mainstay of convenience. In the first half last year, 46% of McColl’s sales were made up of confectionery, soft drinks, snacks and news, with tobacco at 30% and grocery and alcohol 24%. This year tobacco remains largely the same but grocery and alcohol have gone up to 28% of the mix, with the impulse lines now standing at 41%.
On top of that, McColl’s has felt compelled to offer lower prices on key lines such as milk, bread, eggs and flour to convince new shoppers, who were previously used to cheaper supermarket pricing, to stay for the long term.
The lessons here will clearly have wider implications if repeated across convenience, particularly for independent retailers that don’t have the same scale – or the backing of a powerful supermarket supplier such as Morrisons.
On the plus side for McColl’s, Miller says the relationship with Morrisons has proven invaluable during the crisis. Availability was naturally impacted by panic buying and stockpiling, but Morrisons helped McColl’s navigate these issues as well as anyone, he says. The supermarket also came in useful for sourcing key supplies of PPE for McColl’s staff.
On top of this, the trial of converting McColl’s stores to the Morrisons Daily fascia is proving successful, the retailer says. Currently at 30 stores, Miller says sales here were particularly strong and the business is actively looking at opportunities for more conversions.
At the beginning of the Covid crisis, McColl’s launched a partnership with Deliveroo that offered a 300 to 400-strong range from 120 stores. Much has been discussed of late as to whether these partnerships represent good value for retailers and whether they cannibalise sales. But Miller is adamant that this relationship is a winner. “What’s great is that all the sales we are seeing via Deliveroo are incremental,” he says. “It’s been very positive.”
The partnership is set to be expanded to more stores, the retailer adds.
Another interesting bonus for McColl’s is a resurgence in home news delivery. This has seen a 25% increase since March and the retailer is now servicing 100,000 accounts. Miller speculates that this trend looks set to continue and that there may be opportunities to synchronise this service with grocery delivery.
So don’t take these latest results at face value – the silver linings may just outweigh the underwhelming headline figures.
Follow Ronan on Twitter: @ronyhegs