Morrison deal to supply McColls has come from left field but it really shouldn’t have.
Morrisons have quietly been getting on with business while all the focus has been on Sainsburys and their acquisition trail and the Tesco Booker deal. The scale of the Morrisons deal might be smaller, but Morrisons are racking up a string of relationships that will see their wholesale revenue stream take a big step towards the £1bn mark.
So why have Morrisons done this? The revenue from additional wholesale relationships is obviously attractive and adds to the top line but it is the ability for Morrisons to maximise volume through their vertical integration that makes the relationship so attractive and one that shouldn’t have surprised us.
The quality guarantee that comes from owning the farms and fisheries is one that Morrisons have been eager to leverage in their own supermarkets and it was cited as a key factor by Miller, CEO of McColls in moving to Morrisons for its supply. Morrisons own the Safeway brand and with it, it’s quality perception built from many years of Safeway supermarkets. Coupled together, McColls see how they can offer their customers a better quality offer on fresh produce than they have been able to do to date and with it, better ranges and higher sales.
For Morrisons, more volume through the operation equals reduced cost and that is where the Morrison’s customer stands to benefit. Morrisons would have the ability to cut prices for the customer inevitably putting pressure on their grocery rivals.
We have another possibility to float: the revival of standalone Safeway stores. In a conversation with Luke Tugby of Retail Week, we discussed how the Safeway brand would be enhanced though McColls to the point that, in time, it would give Morrisons the opportunity to consider building its presence in the South of the UK where in the past, Morrisons has struggled. It would give Morrisons a premium fascia that would appeal to another demographic, one that would not consider shopping at Morrisons.
It is, of course, speculation, but we do know this: Morrisons are on the front foot and are proactively exploring all avenues of growth. We’d love to know what you think so please do leave a comment.