How Morrisons tie-up with Motor Fuel Group could shake up forecourt sector

Talk about timing. Morrisons chose the very day its former M Local stores were being reopened under the new ownership of Mike Greene’s My Local vehicle to announce its return to convenience with an intriguing new venture of its own.

It is set to pilot a convenience food offer in five petrol forecourt stores owned by Motor Fuel Group before the end of the year. Four of the trials will be in the South with one in the North of England.

And while it’s only a small trial at this stage, the move has been described as “massive” by one of MFG’s forecourt rivals.

Key to the deal is its franchise model. The stores will continue to be owned by MFG but they will be branded as Morrisons, not M Local. And Morrisons will supply all branded and own-label lines.

A Morrisons spokesman says it will work with MFG on the initial ranging and subsequent reviews, and that “prices will be set by MFG but within parameters that support the Morrisons brand and proposition in this format”.

Kudos in forecourts

The reason for the rival’s concern is the kudos a major retail brand can bring to a forecourt site. Linking up with established retailers not only helps improve the grocery offer on site but creates a halo effect for the fuel side of the operation into the bargain.

The key example of this in recent years has been the franchise tie-up between M&S and BP. The partnership began in 2005 and there are now more than 200 M&S at BP Connect stores across the UK. More recently Euro Garages has joined forces with Spar.

The arrival of a second national multiple grocer and one of the big four in particular into this market represents a big move, says the forecourt operator.

“This will have a massive impact if successful,” he says. “M&S at present has complete dominance [in the franchise sector]. Morrisons’ move will force M&S to accelerate growth to secure key sites and could result in it revisiting its franchise solution. The Euro Garages Spar offer will look a poor relation to Morrisons and may spur the decision for it to introduce a bigger brand.”

That bigger brand could even be Morrisons itself. The Grocer has learnt that MFG does not have exclusive rights to this franchise and that Morrisons is free to work in a similar way with other operators, so Morrisons’ move is scalable even beyond the 373 sites that MFG currently operates.

Clive Black from Morrisons house broker Shore Capital certainly seems to think Morrisons will look to take the concept to other operators.

“We are encouraged by such thinking, [which] brings creativity that may in time allow for some leverage of the Morrisons brand and vertical integration into a growth and complementary channel,” he says. “There could be other partners from a store branding and supply base in time.

“This is a capital-light project from a company where de-leveraging and a focus on free cash generation remain core priorities for management.”

Morrisons says it is too early to say how long the trials will run for until decisions are made on the future viability of the project, but it has certainly piqued the interest of others in the sector.

The forecourt operator who spoke to The Grocer would certainly be keen to listen to what it has to say.

“There is a significant opportunity to scale. Morrisons has the infrastructure to take this national quickly. The limitation will be the number of quality sites MFG has,” he suggests.

“In principle I would be interested in having Morrisons branded stores on our forecourts. It offers good value, quality and great range. It will depend greatly on location but, more importantly, margin.”