Analysis: What does Morrisons’ Blockbuster stores acquisition mean for the grocery market?

If anyone was pleased at the bleak administrations of Jessops, HMV and Blockbuster last month then it would have been those looking to expand their convenience arms.

Since volume growth in the grocery market flatlined over the last two years, convenience - as well as online - has been crucial in driving like-for-like growth at UK supermarkets.

Morrisons convenience managing director Gordon Mowat has moved swiftly and smartly to acquire stores which perfectly fit the bill of the Bradford grocers’ modus operandi – to push in the South East and open more convenience shops. The Blockbuster acquisition followed the purchase of seven former Jessops stores earlier this month.

Moreover, the stores represent the first opportunity for the retailer to test its new 100,000 sq ft distribution centre in Feltham, West London later this month as it breaks with its previous business model. Its 12 existing convenience stores have been served by larger ‘mother’ stores meaning prices have been kept at the same low levels found in larger stores where rates, rents and distribution costs are lower.

It remains to be seen whether with the new model, prices will have to be brought in line with the competition where a premium is usually paid for convenience store shopping.

The grocer has also rebranded the stores from M Local to Morrisons M Local. Its proposition of fresh food and a strong food-to-go offer has been praised by consumers and the format has proved popular.

The acquisition now means Morrisons is likely to have 70 convenience stores open by the end of the financial year and represents decisive action from chief executive Dalton Philips who has been criticised for not moving quickly enough on the role out programme.

However, Morrisons will remain far behind its fiercest rivals even after the bulk of the stores open in late summer.

Market leader Tesco Express has more than 1,500 stores and has used first mover advantage to secure good quality sites in the vast majority of UK towns.

Sainsbury’s too has moved swiftly to roll out its Sainsbury’s Local format, first unveiled in Hammersmith in 1998, and now has more than 500 stores. Its rapid opening programme has seen the retailer open one or two convenience stores a week, including opening in former pubs and petrol stations.

However, Morrisons will take heart in the fact archrival Asda – with which it vies for a large portion of its customer base – has little convenience presence. Its 2011 purchase of Netto’s 193 stores made a move towards smaller stores with a supermarket format, as opposed to superstore, and a small Asda set up in a petrol station at its head office signalled a quiet move into the convenience space. But the grocer has been cagey about solid plans for convenience expansion which may tests its Everyday Low Price model.

Elsewhere, Waitrose is vying to win shoppers from rival Marks & Spencer Simply Food and last week revealed intentions to double its store count in the lucrative London market. A galvanised Co-op under new food chief executive Steve Murrells will also be looking to win back market share while the symbol groups including Spar and Costcutter continue to grow market share.

Convenience grocery remains one of the most hotly contested sectors in retail and while the Blockbuster deal goes some way to close the gap, Morrisons still has a long way to go before it can boast an estate the size of its rivals.