Morrisons’ M Local stores have been a huge, costly disaster

Britain’s struggling Morrisons supermarket on Thursday announced its selling pretty much entire convenience store business for £25 million ($US38.4 million) — swallowing a huge £30 million ($US46.1 million) loss.

Morrisons is selling 140 “M Local” stores to a team led by entrepreneur Mike Greene and backed by Greybull Capital. The supermarket is holding on to just 5 M Local stores, either on petrol station forecourts or big enough to be converted into full supermarkets.

Morrisons was late to the game in launching “convenience” stores, smaller local supermarkets. The first M Local launched in 2011. By comparison, Tesco’s first foray into smaller stores, Tesco Metro, started in 1994.

Local stores have grown more and more popular throughout the 2000s, as the success of big, out of town stores has waned. Tesco, Sainsbury’s, and Waitrose have had big success with local convenience stores, which have less choice but are open longer.

Morrisons says in today’s statement:

In March 2015, Morrisons announced a review of the M local business. That review concluded that M local would have required significant further investment in new sites, plus additional capital expenditure and lease commitments, to reach profitability. In the Board’s opinion, today’s sale announcement represents the best solution for Morrisons and will enable future Morrisons investment to be focused on core supermarkets.

Not only is Morrisons making an immediate loss of £30 million, the deal is structured so that if Greene and Greybull’s new gambit with the stores fails Morrisons is responsible for paying the leases on the sites. That could cost it another £20 million ($US30.7 million). The M Local stores made an operating loss of £36 million ($US55.3 million) last year.

Morrisons CEO David Potts says in today’s statement:

Convenience is a large and growing channel in UK food retailing. Morrisons learnt much from its entry into the market, but M local was unable to scale. However, we remain open to other opportunities in convenience in the future. I would like to thank all the Morrisons colleagues for their hard work and dedication to M local.

M Local is just one of many pain points for Morrisons and not its biggest. CEO Dalton Philips was axed in January after poor Christmas results and in March the supermarket revealed its worst set of annual results in 8 years, with pre-tax profit tanking 52%.

It’s tanking profits that are forcing Morrisons to cut any deadwood or speculative projects like M Local. In May the company also announced it was cutting 700 jobs at its head office to save cash.

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