Morrisons scraps M Local convenience stores

The supermarket is set to lose £30m from the deal

Morrisons has retreated from its costly move into the convenience store market (Getty Images)

Morrisons has retreated from its costly move into the convenience store market by offloading 140 M Local stores, banking a £30m loss for its troubles.

The supermarket only launched its convenience store business two years ago in an attempt to catch up with rivals Sainsbury’s and Tesco, but once new chief executive David Potts took the helm he started closing deeply unprofitable sites and looked for a seller for the entire business.

Retailer Mike Greene and private equity group Greybull Capital will take over the remaining branches, and reopen 10 previously closed ones, rebranding them “My Local” stores in an attempt to win over customers in one of the fastest growing areas in the supermarket sector.

Mr Greene said he would focus on putting in more food on the go, snacks and alcoholic drinks, moving away from the current model which attempted to focus more on fresh food.

He said: "All supermarkets try to create mini-mes and Dalton [Philips, former Morrisons chief executive] said he would have the biggest and best range of fresh food, but if you put too much into one area you end up with a lot of wastage or stores that look empty. He then under-spaced food to go, confectionery, snacks and drinks."

The new boss also noted that Morrisons used a huge team of people at head office to run the operation, making it unprofitable, and that he would use a slimmed down team all with convenience store experience.

My Local will be aiming for a turnover of around £30,000 a week, compared with Morrisons’ target of £40,000 a week, but cost cutting elsewhere should make the stores profitable.

The company also pointed out that Morrisons had spent a vast sum of money doing up the stores, that there would be little costs associated with converting them.

Mr Potts said Morrisons would not rule out a move into the convenience store sector in the future, but added: "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."

He revealed that in the last year, stores made an operating loss of £36m last year and £23m so far this year. Morrisons were paid £25m but essentially the deal will end up costing the group £30m, along with the additional liability for the leases, should the new business go bust.