Supermarket war hots up as giants prepare to swoop

McColl’s emerges as key player in £2bn Sainsbury’s supply contract

SAINSBURY’S is in talks with grocery chain McColl’s over a potential multi-billion pound deal aimed at tightening its grip on the convenience store market.

Talks are understood to centre on a £2 billion supply deal, but sources said the discussions could go wider.

Sainsbury’s is known to be scouring the market for a lucrative deal in the convenience store and wholesale food market which could include a takeover. McColl’s, which has almost 1,400 stores, has been identified by City analysts as a potential takeover target.

The discussions are the latest twist as major supermarkets fight to gain control of convenience stores – a battle seen as key to future profitability.

The interest in convenience store chains went into overdrive earlier this year after Tesco surprised the market by announcing a plan to buy Booker, which owns Londis, Budgens and Premier and supplies thousands of smaller stores with stock.

That bid – which will add £ 5 billion to Tesco’s sales – is the subject of a probe by the Competition and Markets Authority amid fears it could give Tesco a stranglehold over smaller stores. Sainsbury’s is in separate talks over a £ 130 million bid for Nisa, a wholesale group which supplies 3,000 convenience stores across Britain.

It is not yet clear whether the talks between Sainsbury’s and McColl’s will scupper or cement any deal with Nisa. But they could unsettle Nisa which appears increasingly keen to find a buyer. One source described Sainsbury’s bid for Nisa as ‘baffling’ in light of the McColl’s contract.

McColl’s has suddenly emerged as a strategic asset in the battle. It is Nisa’s biggest customer, with a five-year contract to buy up to £500 million worth of goods from Nisa every year. The deal accounts for 40 per cent

of Nisa’s £1.2 billion annual sales. However the contract is close to an end, potentially leaving the field open for McColl’s to strike a new deal, possibly with a major supermarket.

The contract’s existence is understood to have been discovered by Sainsbury’s during its analysis of Nisa. Its talks are thought to be aimed at securing that contract’s renewal or replacing it with a deal under which McColl’s buys its stock from Sainsbury’s.

However, there is also increasing speculation that McColl’s itself could become a bid target. McColl’s operates 1,387 shops, including 1,019 McColl’s branded convenience stores as well as 368 newsagents. It also runs 400 Post Offices from its shops, making it the largest such operator in Britain.

One source familiar with the grocery and convenience store sector said: ‘Everything is being considered and nothing is off the table.’

Jonathan Pritchard at stockbroker Peel Hunt said: ‘There are a number of complications in the Sainsbury’s-Nisa deal and one of those is the supply contract.

‘The only thing that doesn’t add up is the valuation of McColl’s. It’s being regarded by the market as an uninspiring, growthless corner shop, which is just not true.’