In one fell swoop, McColl’s has grown its store estate by over 30%, with 298 Co-op stores.
If approved by the CMA, the £117m deal will fuel McColl’s continued transition from CTN to convenience retailer in a move it describes as “transformational”.
But how much difference will these extra stores make?
Not a lot, if McColl’s share price is anything to go by.
Since its float in 2014, McColl’s share price has been on a downward slope, from a high of 195p in August 2014 to a low of 126p earlier this month. While the price has since picked up (with shares sitting at 149p as The Grocer went to press) it’s lower than it was a year ago. Which is surprising given sales have been generally positive, with turnover up 3.1% to £932.2m and profits up 67.4% to £21.1m in 2015.
“The problem investors have had with McColl’s is that its older and smaller stores are vulnerable to the constant decline in CTN trade and to the constant expansion of Tesco Express and Sainsbury’s Local,” says retail analyst Nick Bubb.
McColl’s has been steadily growing the percentage of convenience stores in its mix (after disposals the figure is static at around 800 since 2014, while the number of CTNs has declined from 516 to 433 over the period), with a focus on mid-size convenience stores in neighbourhood locations.
The Co-op stores, which average 1,700 sq ft, fit the bill perfectly. “Management have been working hard to shift the balance towards bigger and more modern stores and the Co-op deal certainly cements that approach,” says McColl’s CFO Simon Fuller.
With 1,231 stores (vs the current figure of 933) McColl’s will become the third-biggest convenience operator (by store numbers) in the country (behind Tesco and The Co-op), while entering the Northern Irish market for the first time, “representing a new venture for us,” adds McColl’s COO Dave Thomas.
And for £117m, the price paid (at around £390,000 each) represents a “bargain”, says Christie & Co retail MD Steve Rodell. “I think it’s a fantastic deal. You can’t buy 300 c-stores at once anywhere. £390,000 a store doesn’t sound like much to me. The average freehold property price is north of that.”
With a more limited selection than the Co-op’s increasingly fresh and own-label focused offer, the smaller footprint of these stores can work in McColl’s model, adds Rodell. “The Co-op has a very high bar for stores. It has to have a turnover in excess of £35,000-£40,000 a week. McColl’s probably marks it at about £20,000 a week. So if it’s not making the grade at Co-op level it could make a great McColl’s store.”
Indeed, while sales might not be up to scratch for the Co-op, the stores will already carry a reputation for a premium convenience offer with a great fresh and chilled range, which McColl’s is in line to inherit, says Thomas. “We would be keen to replicate that improved performance. These stores already have a high percentage of sales in fresh food and groceries and it’s higher than our average c-store.”
What’s more there’s still all to play for when it comes to the supply chain, with Thomas keen to use its extra heft to secure better terms. There’s even the possibility of using another supplier. “Our existing stores are supplied partly by Nisa and partly by P&H but we haven’t decided who’s going to supply the new stores yet,” says Thomas.
According to an industry source, Nisa will be pulling out all the stops to seal the deal. “I know Nisa is hoping to supply the new stores and it probably will make it attractive to replace some of the My Local volumes but, as McColl’s never gave them all of their existing volume, it’s not a certainty,” says the source.
“It may come down to whether it can make the chilled work in these smaller stores due to the minimum drops and penalties Nisa are imposing.”
And while competition is fierce, crucially, Fuller points out, “we’re not saturating, we’re consolidating. We are buying up existing businesses with existing trade. We’re not adding new stores into the convenience market. We certainly wouldn’t read the My Local situation as being a suggestion that convenience isn’t a good place to be.
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