Strong demand for Morrisons products boosts McColl's

It will look at converting more stores to the Morrisons Daily fascia in the first half of next year, adding to the 31 trial stores currently in operation.

In a trading update for the 53 weeks to November 29, McColl’s said its strongest performance was delivered through its Morrisons Daily format, with significant like-for-like sales growth.

The firm is also in the process of migrating the remaining part of its estate to being supplied by Morrisons, in order to simplify its operations, which is expected to complete by March next year. This means that all McColl’s stores will sell food supplied by Morrisons rather than a mix of Morrisons and Nisa.

Jonathan Miller, McColl’s chief executive, said: “Despite the challenges of 2020, the pandemic has reinforced our confidence in our ongoing strategic change programme.

“The importance of neighbourhood stores has never been greater, and we are well positioned to continue enhancing our convenience offer by further developing our partnership with Morrisons, and further improving the quality of our estate and our overall customer experience.”

Analyst Clive Black at Shore Capital said: “McColl’s 2020 like-for-like sales rose by 12 per cent, which is very good, albeit with store closures and changes to mix, total sales growth was a more modest 2.3 per cent whilst gross margins were weaker.

“Clearly, Morrisons is ‘exposed’ to the total McColl’s top line as opposed to its same store momentum. Nonetheless, there was underlying sales growth, which we deem to be sound as McColl’s seeks to improve the quality and sustenance of its estate, which in-turn will be good news for Morrisons.

“More encouraging for Morrisons, however, is the report that the strongest performance within the McColl’s estate came from the Morrison Daily format, where like-for-like sales growth is characterised as ‘significant’. We suggest that this is particularly good news for both parties.”

Mr Black welcomed the news that McColl’s is reviewing the opportunities with respect to the Morrison Daily fascia and that it will be adding to the current cohort of 31 trial stores currently trading.

“We welcome this news, firstly, because the tie-up is going well and secondly, from a Morrisons’ perspective, that the reach of the brand will be penetrating more neighbourhoods going forward in a capital light manner,” he said.

“Lastly, and perhaps most significantly to us, McColl’s confirms that it is currently migrating the last cohort of stores, acquired from the Co-op, to the Morrisons’ wholesale supply system, and this is expected to be completed by March 2021.

“Importantly, for us, such work should provide what has been an awaited step up in Morrisons’ wholesale activities, and, again, the potential benefits from the collaboration to push more fresh food volumes through the group’s infrastructure whilst boosting the authority and mix of McColl’s proposition.”

McColl’s said pandemic costs and product changes mean annual underlying earnings will fall to between £29m and £30m, down slightly from £32m last year.