Blackfriar: Supermarkets should be wary of selling off crown jewels

The argument is that billions could be raised if the major grocers sold off their crown jewels, their freehold properties, and leased the properties back.

According to reports, a number of Wall Street investors want Tesco, Sainsbury’s and Morrisons to shake-up their store estates.

Activist investors are particularly calling on Morrisons to explore the possibility of establishing a separate property company, 75 per cent owned by Morrisons, like Loblaw, the food retailer in Canada.

But the big difference is that Canada is completely unlike the UK. Its huge expanse makes internet and convenience shopping – the two growth areas in the UK retail landscape – impractical.

Two years ago Tesco started the end of the space race – the so-called charge to open ever bigger, ever better, massive mega stores.

People in the UK no longer want to get into their cars and drive miles to some soulless shed in the middle of a dreary retail park and spend two hours trudging up and down the aisles.

Instead, they can spend five minutes from the comfort of their PC, laptop or smartphone ordering their usuals for either home delivery or click and collect.

If they need something for tonight’s meal they can pop by a convenience store on their way home and pick it up with very little bother.

If the UK grocers flogged off their stores and then leased them on 10 or 15-year leases, what would happen if five years into the lease they were no longer viable? This could be quite likely if shoppers continue to flock online and to convenience.

The lease would become an albatross around their necks.

Morrisons already plans to sell off part of its £9bn property portfolio, over 90 per cent of which is freehold, which is a considerably greater proportion than its main rivals.

It should be remembered that Sir Ken Morrison deliberately created this portfolio as he didn’t want to be left at the mercy of long-lease agreements.

There are a lot of other doubts about the US investor plans.

There is no way the Competition Commission would let the big four supermarkets be carved up and forced to sell their assets – especially with trading being so tough.

The Commission said it wanted four national players competing in a viable manner after Morrisons bought Safeway in 2003. As analyst Clive Black at Shore Capital says: selling off the freehold assets could leverage the retailers to a point where their viability comes into question.

Yes the big four supply 75 per cent of the nation’s groceries, but all are losing market share to a storming Aldi and Lidl at the lower end of the spectrum and Waitrose and M&S at the top end.

In addition, these US investors would have to spend huge amounts of cash buying up shares to achieve their goal – money they don’t have.

US activist investors are very good at huffing and puffing, but they very rarely blow the house down – or force the owners to sell it.

• Talking of Morrisons, it does feel like it has been through the wars lately.

Every week brings another bit of bad news.

This week it was that George Dymond, the man recruited by Morrisons to bolster its new online grocery business, has resigned just weeks after joining the firm.

Mr Dymond, Morrisons’ online food operations director, quit the job after deciding it was not what he was expecting.

Morrisons’ late entry into both online grocery and local convenience stores, the sector’s two fastest growing channels, has dented its market share and profits.

Earlier this month, the group revealed it had endured a poor Christmas despite it having talked up its prospects in November.

Its like-for-like sales fell 5.6 per cent in the six weeks to January 5 and it said year profit would be towards the bottom of the range of analysts’ expectations.

It has also had to cope with a senior employee being arrested over allegations of insider trading reportedly in relation to its online partnership with Ocado.

Morrisons will be keeping its fingers crossed that this run of bad luck is about to end next week when it launches its online operation in its Yorkshire heartlands.

As one Morrisons insider said, Yorkshire customers will be the company’s hardest critics.