Morrisons sells convenience stores for £30m loss

Supermarket chain Morrisons is due to sell 140 of its loss-making M Local convenience stores.

The stores will be sold for approximately £25 million in cash to retail entrepreneur Mike Greene, backed by Greybull Capital LLP. Morrisons will keep five M Local stores, which are either forecourts or will be converted into small Morrisons supermarkets.

There had been speculation among the press that a sale would take place this week, although for a significantly larger sum. The Week UK and Retail Week both reported that the M Local stores would be sold for £50m.

The news comes after the supermarket chain announced a review of the M Local business in March of this year. The review concluded that in order to reach profitability, the stores would have required significant further investment in new sites as well as additional capital expenditure and lease commitments.

“Convenience is a large and growing channel in UK food retailing. Morrisons learnt much from its entry into the market, but M Local was unable to scale. However, we remain open to other opportunities in convenience in the future,” said David Potts, Morrisons CEO.

It was revealed that the business was expecting to face a loss on disposal of an estimated £30m. As well as this, Morrisons holds a guarantee on individual lease obligations, which could return to the company if the new business does not succeed. If this is the case, the remaining contingent liability could be up to £20m.

The stores that are due to be sold recorded an operating loss of £36m with gross assets of £68m in 2014-2015. For 2015-2016, the stores’ operating loss was a reported £23m.

“I would like to thank all the Morrisons colleagues for their hard work and dedication to M Local,” concluded Potts.

Jon Copestake, chief retail analyst at The Economist Intelligence Unit, commented on the sale.

“The failure of Morrisons to turn its convenience offering into a valuable going concern highlights the structural problems faced by the retailer. For other mid-market retailers such as Tesco and Sainsbury's, convenience stores have been a saving grace in a tough overall market. There has also been an underlying trend toward smaller stores as big box offering become increasingly undermined by discounters and online retail. However, like Dave Lewis at Tesco, Morrisons CEO David Potts is no doubt looking for quick and easy wins to shore up his balance sheet and simplify Morrisons’ structure. For Dave Lewis, offloading foreign units is the chosen path but Morrisons has no international operations so is refocusing on the store formats which are responsible for its previous successes. 

“While critics of the move will see Morrisons exiting a fast-growing retail format as being short sighted, other may point to the fact that a consolidated supply chain which saw large stores supporting butchers and fishmongers were considered to be among  Morrisons core strengths a decade ago.”

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