Morrisons looks like it will be selling off its convenience chain of stores to an investment company led by Mike Greene who is well versed in how to run them.
While it is common knowledge that M Locals aren’t the jewel in the Morrison’s crown, coming to the party late after all the best sites have gone or paying over the odds for premium locations which were rejected by the grocers ahead of the curve, they are a toe-hold in what is a fast growing sector of the retail industry.
Much like a range-review where buyers are tempted to cut the tail of the weakest performing SKUs, cutting a format out of the equation could be a step too far. Focus on the core business model is absolutely essential. This is where the majority of sales are made and profit is generated. However, if the core business supports a shrinking market, or outdated customer behaviours, the sustainability of that model is challenged.
The convenience sector is strong, and getting stronger. Yes, M Local is not right but with such an opportunity, Morrisons should really be exploring ways to penetrate that market within its core business.
The latest Asda results for their Q2 are the worst that the business has ever seen, and they don’t have a convenience format. Coincidence? Of course there is a lot more to the Asda results than the lack of a convenience format but with customers leaving big box grocers in favour of smaller formats more local to them, Asda are missing the very same opportunity as Morrisons and are inviting customers to switch away from their brand.
Like loss leaders in a range review, loss leading formats are better than missing a sizable chunk of the market entirely. Formats are part of the whole and by saying the business must focus on its core business, neglects growth opportunities. By all means manage the core business to be more profitable so that it can subsidise other formats in the short term while efficiencies and growth opportunities are developed.
A renewed focus on Morrison’s core supermarkets is essential for its business growth, but we suggest that this isn’t where the strategic review begins and ends. Looking forward not inward, is critical for its success.