McColl’s Retail has raised around £30m through a share placing to support the rollout of Morrisons Daily stores. The move came as the convenience retailer warned of profit headwinds due to product availability issues.
McColl’s, which trades from about 1,200 stores, has had a wholesale supply deal with Morrisons since 2018, covering brands and the Safeway own label. Back in March, McColl’s revealed that it planned to roll out the Morrisons Daily format to 300 of its stores over the next three years with the support of its supermarket partner. This followed the strong performance of an initial batch of former McColl’s outlets now operating under the Morrisons fascia that have benefitted from “a higher mix of grocery sales, breadth of offer and value proposition”.
Proceeds from yesterday’s capital raising will be used to deliver 50 additional store conversions on top of the original target of 300, and to complete the roll-out by November 2022 – a year earlier than planned. Money will also be spent on improving the grocery infrastructure in the Morrisons Daily sites and strengthening the group’s balance sheet.
“Today’s successful capital raise represents a transformational opportunity to accelerate our strategy and capitalise on the growth opportunity available to us in food-led convenience,” said Chief Executive Jonathan Miller.
McColl’s also released its interim results yesterday in which it warned that it might not meet management expectations for the full year if product availability issues caused by the lorry driver shortage continue into the second half.
Over the 26 weeks to 30 May, the group’s adjusted EBITDA declined 13.2% to £24.3m due to lower gross profit and costs related to the Covid crisis.
Total revenues fell 5.3% to £572.7m after 43 planned store closures. However, like-for-like sales edged up 1% as the chain benefitted from consumers shopping locally during the last lockdown. Two-year like-for-like growth was 7.4%.
McColl’s converted 25 of its stores to the Morrisons Daily format during the period, with a total of 56 stores now in operation. It is on track to have 100 by the end of the financial year with capacity for six store openings per week.
“We have continued to play an important role serving local neighbourhoods through the challenges of Covid-19, sustaining like-for-like sales growth despite the strong prior-year comparator in Q2 following the first national lockdown,” said Miller.
“Many of the changes in consumer behaviour we have seen since the onset of the pandemic have continued in 2021 with customers spending less on impulse goods, but buying more take-home and multipack products, impacting overall margins.
“Alongside the impact that the industry-wide shortage of delivery drivers has had on our product availability, we are confident that these temporary trading effects will reverse as restrictions ease and distribution returns to normal.
“During the period we made good progress against our strategic initiatives. We are delighted with the performance of our Morrisons Daily conversions and we now have a blueprint for this model that offers a strong return on investment.
“Looking ahead, whilst the wider economic outlook remains uncertain, we have clear demand for our grocery-led convenience offer, and our focus in the second half will firmly be on the continued roll-out of the Morrisons Daily stores, to help drive sustainable, profitable growth over the medium term.”
NAM Implications:
- McColl’s clearly investing in success…
- Hopefully their suppliers will seize the opportunity.
