Morrisons is already in debt to the tune of £6.6bn and is now facing higher debt repayment costs as borrowing costs soar, yet it will plough on with its acquisition of over 1000 McColl’s convenience stores.
There were some doubts as to how the deal might go ahead but in the end the Competition and Markets Authority gave it the green light as long as Morrisons agreed to dispose of 28 McColl’s sites that were seen to be in too cosy a relationship with Motor Fuel Group sites, given that both companies are now owned by US private equity business Clayton Dubilier & Rice, which has loaded Morrisons with all this debt.
Morrisons needs a bigger convenience offer, in a sector that is not as price-sensitive as supermarkets, a fact of which it is painfully aware since Lidl knocked it out of the Big Four category.
The challenge for the company will now be managing essentially two different formats, each with a unique set of requirements around supply chain, ranging and assortment, merchandising and promotions and of course, pricing. Tech will play a huge part, but the company has some catching up to do compared with its rivals.
It should invest immediately in electronic shelf labels if it really hopes to replenish more efficiently, cut waste, pick online orders more quickly and embark on a hybrid dynamic pricing model. It should make greater use of AI to look for deeper insights into availability, a decision it first took in 2017 which led to a 30% improvement mainly in the all-important fresh and ambient categories. It is also clearing markdowns more quickly. And it should be giving staff greater control over their tasks using more hand-held devices.
However, servicing £6.6bn of debt is almost certainly going to limit funds available to IT.