What does the Blockbuster deal mean for Morrisons?

Date : 18 February 2013

The purchase of 49 Blockbuster stores signals a determination to become a significant player in the fast growth convenience market. In this article we explore the benefits of the deal and how it moves Morrisons closer to being a multi-format and multichannel retailer:

A step change in its convenience presence

The acquisition will instantly make Morrisons a notable player in convenience. Morrisons has found it difficult to develop the business at the pace initially expected. The retailer wanted 20 stores by the end of January 2013, but to date only 14 have opened. These 49 stores (which are expected to be trading by the end of the summer), on top of the seven Jessops stores bought earlier this month, will take it very close to its 70 store target for January 2014.  And with many high street retailers under pressure, it is highly probable that further sites will become available this year.

Aligned with convenience DC location

Crucially, many of the new stores are in the South East, the region Morrisons has prioritised for developing its convenience business and where a shortage of sites makes it hard to open supermarkets. The new convenience stores can be efficiently supplied from a new dedicated 100,000 sq ft distribution centre in Feltham, West London, set to open later this month. Initial M local stores have been supplied directly from nearby supermarkets, limiting where they could be opened, but this new facility will provide freedom from this constraint and underpin a more scaleable operation.

Supported by "Morrisons M local" branding

The decision to rebrand M local as Morrisons M local is also significant. By linking the M local banner to Morrisons, it will be clear to shoppers of the new stores who are less familiar with Morrisons that they are the same retailer. Shoppers will understand that M local with its overindexing on fresh lines and in-store counters is a format linked to the increasingly widespread Morrisons Fresh Format stores. Morrisons M local should also then benefit more directly from Morrisons national advertising.

Opportunity to deliver a new shopping experience

With an average size, we understand, of 2,300 sq ft the Blockbuster stores are slightly smaller than existing M locals. This presents challenges for Morrisons to execute its concept as compellingly as in a larger convenience store. Moreover, the location of some stores on secondary high streets may limit footfall, but could give Morrisons a real opportunity to deliver a new shopping experience and achieve destination status in these catchments.

Enabling Morrisons to benefit from rapid convenience market growth

This marks a step change for Morrisons, giving it a platform from which to expand further. But against the likes of symbol groups such as Spar and Londis and Tesco (c.1,500 Express stores) and Sainsbury's (c. 500 Local stores) it remains a modest player in this channel. For suppliers however, it means they will need to start thinking more seriously about convenience at Morrisons, get to grips with the store format and understand how it could be adapted to a potentially smaller footprint. The rewards however could be significant. We expect convenience channel growth of 28.5% over the next five years to significantly outstrip that of the overall grocery market.

Further raising convenience store standards

The rollout of Morrisons M local with its comprehensive fresh offer and well executed counters to many more locations is a further demonstration of the rapid pace of development in the convenience sector. It will put pressure on other operators to explore how they can better meet shopper needs in their localities and also heighten expectations of value from small store formats. By raising expectations, Morrisons M local should also encourage more shoppers to consider convenience stores for a greater portion of their shopping trips.

A precursor to more online activity from Morrisons

Morrisons has announced plans to launch an online grocery service after reaching an agreement with Ocado. The move follows on from Morrisons experience gained via its investment in New York based Fresh Direct, the recent launch of Morrisons Cellar and its new tie up with Lakeland to offer kitchenware online. Clearly the rollout of a convenience store network could help Morrisons to establish a Click & Collect service that would further strengthen its growth prospects.