Who will buy the McColl’s stores if it goes under?

You would think the Issa brothers have enough on their plate for the time being, what with Asda, the UK’s third-biggest supermarket, casual dining chain Leon, the Cooplands bakery chain and another 50-odd KFCs to incorporate into their EG Group. But their appetite for more risk and more opportunities seems limitless.

Having apparently pulled out of a deal to acquire the beleaguered McColl’s chain last week, the Issas are now reportedly in pole position to buy Boots (for £6bn). Meanwhile, as we report, Zuber is opening a little convenience store in his home town of Blackburn. Are there no pies (big or small) the Issas don’t want their fingers in?

As much as the ambition, though, it’s the rationale for the interest itself that baffles. And not just in the case of that little store in Blackburn. Why would they want to buy McColl’s, which would contractually oblige them to pay rival Morrisons to supply those 1,000-plus shops until 2027? Did they not know that, and pull out when it dawned on them?

It’s easy to post-rationalise amid the silence, and speculate they will re-enter negotiations if McColl’s does go into administration. And with such a chequered performance these past four years, and lending banks particularly unhelpful at the moment, amid broken covenants and continuing supply chain uncertainty, sadly there’s a strong possibility of a McColl’s wipeout.

Stripped of those contractual obligations, the Issas would then be in a straight bidding war with Morrisons itself as Tesco would surely be out of the equation for competitive reasons and ditto Sainsbury’s. Mind you, it would be interesting to see how the CMA considers aspirins sold in EG/Asda/Boots/McColls, especially when the precedent is petrol price increases in Asda/EG.

And what of Morrisons? The wholesale contract is around £600m. On a month’s credit, they could lose c£50m if McColl’s goes down. And it’s clearly in its interests to support the business (added to which is the fact that the contract is moving closer to profitability). If it could get its hands on the Morrisons Daily stores, without having the long tail of old newsagents, which are quietly dying, there’s a good medium-size convenience store business there.  

You would think then that CD&R, with a number of smaller convenience stores through its Motor Fuels Group, would be in the driving seat – with the administrators selling off the rump as best it could. On the other hand Morrisons is in the middle of a CMA process with MFC and the last thing they need is the McColls estate to come into the review.

As such a carveup would be the most likely option, with different retailers interested in different stores. Probably a structure will be put together to keep it going with store sales. But Morrisons supply and the support of suppliers would be critical.

But you never know with the Issa brothers. You wouldn’t put it past them to bag the whole job lot.