Morrisons is relaunching the supermarket brand Safeway as part of a deal with convenience retailer McColl’s in a move that positions it even further into wholesale.
Under the deal, Morrisons will supply the high-street chain’s 1,300 shops and 350 newsagents with Safeway branded own-label food and drink products. McColl’s will have one year of exclusivity for the brand with Morrisons then potentially looking to distribute Safeway branded products to other convenience retailers.
McColl’s will be hoping the Safeway brand will give its business a boost after pre-tax profits fell from £8.2m to £4.5m in the first half of the year after its bottom line was hit by a deal to acquire 300 Co-op stores.
Retail analyst Steve Dresser says it’s a good marketing move. He believes Safeway, despite going out of business as a supermarket chain in 2005 when most of its 479 stores were acquired by Morrisons, is still a much-loved brand.
“The move generates some equity for the returning brand in the mind of McColl’s customers,” he tweeted. “It is also cheaper for Morrisons than buying the Nisa convenience chain and all the integration headaches that would have come with that move.”
According to YouGov data just 39% of British consumers believe leading brands are usually better than own-label. Some 65% believe there isn’t much difference between branded goods and supermarkets’ own products.
This data suggests the move to create a Safeway own-label brand could pay off, with TCC Global’s global insight director Bryan Roberts insisting Morrisons will benefit from the “residual fondness” Brits still have for the Safeway brand.
Big four battle over wholesale
The McColl’s deal isn’t Morrisons first foray into wholesale, with the big four supermarket last year announcing a deal to supply Amazon Fresh with Morrisons-branded food products. And in a retail environment that has seen Tesco spent a whopping £3.7bn to acquire wholesale giant Booker, Roberts says Morrisons is conducting its business in a more “sensible” way.
He tells Marketing Week: “There might have been a temptation for a knee jerk reaction and to just throw out the cheque book when it comes to wholesale, but Morrisons has so far avoided this. It is executing a credible, capital light plan.”
Roberts doesn’t expect Morrisons to re-enter the convenience market anytime soon, but to instead continue to make moves as a wholesale supplier. And despite Morrisons CEO David Potts’ insistence today (1 August) that the McColl’s deal will be a “long term” partnership, Roberts thinks his ambitions could be even wider.
“Once the one year is up with McColl’s, I wouldn’t be surprised if Morrisons really tries to open it up and make Safeway the default own-label brand within convenience retailers,” he explains.
Dresser adds: “Morrisons has spent zero and this looks like a decent pickup for its wholesale business. It’s amazing that in just a year they’ve gone from nothing in wholesale to supplying Amazon, McColl’s and petrol stations.”
If Morrisons wholesale business prospers purely through strategic partnerships, Tesco might just start to wonder whether spending £3.7bn was the right move.