Sales Surge Higher At McColl’s But Suffers Hit To Profits

Namnews, 23rd March 2021

Year-end figures from McColl’s confirm it benefitted from strong demand in the convenience sector during the pandemic, although profits took a hit as consumers shifted their spending to lower margin products.

Over the 53-week period ended 29 November, the group’s total revenue rose only 3.2% to £1.26bn due to divestments and closures as part of its store optimisation programme. However, like-for-like sales jumped 12% driven by strong performance in the alcohol, fresh food and tobacco categories.

However, gross margins fell from 25.9% to 23.9% as customers moved away from impulse products and food-to-go items to lower margin take-home products, as well as multi-buys and value items. McColl’s also said it made a strategic investment in price in key product areas to build loyalty with new and existing shoppers.

The lower gross profit, a reduced contribution from services, and extra costs related to operating the business during the pandemic led to McColl’s adjusted EBITDA sliding 9.3% to £29.1m. Adjusted pre-tax profit dropped from £7.4m to £1.1m on higher finance costs.

McColl’s highlighted progress in a number of key areas, including the recent extension of its wholesale partnership with Morrisons for a further three years to 2027. The retailer said this was a “significant milestone” in its strategic goal of becoming a food-led convenience retailer.

McColl’s is now planning to roll out the Morrisons Daily format to 300 of its stores over the next three years to add to 31 Daily stores currently in operation.

The group closed a total of 179 stores during 2020 as part of its focus on larger, more profitable, grocery-led stores. It is targeting an optimised estate of around 1,150 stores, from 1,265 stores currently.

Giving an update on current trading, McColl’s revealed that like-for-like sales grew 8.8% in the 15 weeks to 14 March 2021 despite the “ongoing operational challenges” brought about by the pandemic. As lockdown restrictions begin to ease, the group stated that it expects its sales mix to normalise with higher purchases of impulse products and a progressive reversion towards pre-pandemic margins. However, it added: “We remain in a highly uncertain environment, with little visibility on macroeconomic and consumer trends for the remainder of 2021.”

CEO Jonathan Miller commented: “Over the last 12 months we have seen strong like-for-like sales growth, driven by the positioning of our stores in key neighbourhood locations and our strong customer offer. Despite the operational challenges of the pandemic, we have made good progress on our customer-focused strategic change programme.”

He added: “Looking ahead to 2021, whilst uncertainties and restrictions remain, there is no doubt that the strategic importance of neighbourhood stores has never been greater, and we are well-positioned to deliver for customers and shareholders, as we continue to enhance our convenience offer.”

NAM Implications:

• A pragmatic cut-to-fit policy.
• In terms of store numbers (with profit the only real measure, an alternative to carrying passengers)
• In response to reduced demand (consumer fear/uncertainty)…
• …and the growth of online.
• Finally, anyone relying upon a return to impulse purchasing (social distancing sales resistors)…
• …needs a fundamental re-think.