McColl’s FY 2020: what it tells us about UK convenience retailing in 2021

Date : 24 March 2021

Patrick Mitchell-Fox

Senior Retail Analyst

Major UK convenience retailer McColl’s has announced its full-year results for 2020 and updated on its strategy to maintain business momentum going-forward.

It’s no surprise that the announcement confirms that 2020 provided exceptional conditions for retailers focused on trading in local, neighbourhood locations within easy reach of big groups of house-bound residents.  But what does the experience of McColl’s tell us about how the sector has changed and how 2021 will play-out for convenience operators?

1. The performance of local c-stores remains strong, but is moderating

Having posted a remarkable like-for-like performance of +12% for 2020 the McColl’s announcement reports that over the first 15 weeks of the current financial year (to 14 March 2021) its like-for-like sales were up 8.8%.  This is still a very strong performance, but 8.8% shows a relative slowing against the Q4 figure of 11.4%, which itself was a notable step down from the peak of performance in Q3 at 19.4%.

Going forward the arrival of 2020 'pandemic comparatives' from mid-March onwards will make assessing year-on-year performance much harder, sending headline figures negative. However, with McColl’s current momentum, it looks like the retailer will retain a notable degree of elevation into the second quarter of 2021, when viewed on a two-year comparison.

But thereafter, the prospects for performance start to encounter a greater number of unknowns as the consumer landscape should be normalizing according to the roadmap for unlocking. However, with a summer of British staycations in view the opportunities for local retailers surely remain good.

2. UK c-stores now have an intensified role as ‘mini-supermarkets’

There’s no doubt that changes in shopper behaviour in the last year have shifted the typical convenience shopping mission away from a traditional ‘impulse’ skew and towards a bigger top-up and take-home focus. For McColl’s this shift has been material enough to impact its overall gross margin, with a fall of two percentage points, to 23.9%, driven by shoppers trading into lower margin categories (like alcohol) and bigger pack sizes. In 2020 McColl’s like-for-like growth in alcohol and grocery categories was 17% versus just 1% in confectionery, soft drinks and snacks.

In recognition of this change McColl’s is not only expanding ranges carried across all stores, but is accelerating the step-change towards a bigger grocery focus with an extended roll-out of the Morrisons Daily franchise format to a total of 300 stores.

Backed by the extended capability of Morrisons ranges the Morrisons Daily mix is 50% grocery, with a significant fresh component, enabling these stores to meet the broader top-up needs of the bigger convenience basket. While to date McColl’s stores converted to Morrisons Daily are larger stores, over 2,000 sq ft, they do include units as small as 1,300 sq ft.

3. More ‘local’ sites are now commercially viable for ‘grocery convenience’

Despite the strong performance of most of its stores in 2020, McColl’s is still pursuing a strategy to right-size its store portfolio, aiming to reduce numbers from the present 1,265 by the closure of smaller stores which lack the potential accommodate its key growth ranges in grocery and alcohol.

However, while in 2019 the reduced number of stores was set at 1,100, the experience of 2020 has led to a rethink on a number of sites. Though the smallest sites are still to go, an additional 50 will be retained leaving McColl’s with 1,150 stores.

It’s clear that the changes in the convenience sector in 2020 have changed the commercial potential of sites that were previously seen as sub-optimal for a fuller grocery offer. The corollary of this is that competition for what may have been unfavoured sites in the past will intensify as more retailers seek to optimize this increased opportunity in the UK’s neighbourhood and residential locations.

4. Online/delivery in convenience is here to stay – for now

Like other convenience retailers McColl’s has moved to capitalize on the huge upsurge in demand for home delivery during 2020 and into early 2021.

McColl’s now has 400 of its stores trading on the Uber Eats ‘aggregator’ platform, which provides a ready-made delivery resource for these sites.  McColl’s notes that this partnership is driving incremental store revenues, and also that it expects that its online sales will triple over the course of 2021.

In addition, McColl’s states its intention to continue exploring alternative options for executing delivery with other local partners in order to target the potential for further ‘headroom’ in the channel.

Looking for ways to target the convenience opportunity? Subscribers can catch up on our latest How you can grow in the convenience channel series of reports