Morrisons buys McColl’s – What does it mean for the retail sector?

Dr Fletcher said: “As a decision about the future of McColl's bounced around different board rooms last week the drip feed of information also provided a slow unwrapping about the state of the UK high street.

“What remains is a question about the sustainability of the UK supermarket and convenience sector. The trajectory towards too many, too large stores and too few smaller convenience retailers is not a game that can be won on an inevitable downward spiral towards the lowest price point. If this current model of retailing continues there will be further failures.

“McColl's is a convenience retailer, its stores service localities where the big supermarkets are not easy to access or have more restricted closing hours. For many, a trip to McColl's is a rare late night or Sunday afternoon journey but for some McColl's provides many of their groceries because they cannot travel more widely and they do not use or cannot afford the cost of a 'big shop' home delivery service.

“A visit to McColl's involves paying a premium for the convenience. This is evidence of the Vimes Boots Index. The argument that the rich stay rich because they can afford to be. The rich spend proportionally less of their income on consumables and can buy higher quality goods that last longer or a more goods at one time (at lower unit costs) the impact of change in the cost of living are felt less and more slowly.

“The cost of living crisis has contributed to highlighting McColl's situation and tipping it towards administration. With £170 million of debt and two pension schemes the issues at McColl's have been slowly mounting. But with consumers being squeezed the difference between walking to McColl's and paying a premium in contrast to getting transport to the nearest big supermarket may have become too much to bear.

“The US private equity owned and McColl's wholesaler Morrisons finally won out over the ASDA owning EG Group. This adds value to Morrisons for its owners and could provide a new spark of life to the Morrisons Daily brand. The deal makes even more sense when the alternative prospect of decoupling Morrison's wholesale agreement with McColl's and rearranging the McColl's management of Morrison's Daily would have been potentially messy and expensive. The pre-pack administration also sorts out McColl's debt and continues to support the existing pension - something EG Group was reportedly more reluctant to pick up.”