Why invest in McColl's
We are a leading neighbourhood retailer operating in the growing convenience channel. We have a strong and experienced management team and our unique and flexible business model sets us apart from our peers. We are making significant progress towards our three strategic goals and we are leveraging our financial strengths, to drive sustainable business growth and returns for shareholders.
We operate in a growing marketplace
1. Changing lifestyles favour convenience shopping
Long-term trends are changing the way we live and shop, which in turn is shaping the grocery industry. Longer average life expectancy, more single person households, more dual-income households, lengthy commutes, a greater emphasis on leisure time and changes in technology are all impacting the way we shop. These lifestyle changes are driving growth in the convenience channel as shoppers look to save time and manage their budgets by shopping little and often.
2. The convenience channel is growing faster than the grocery sector
The overall grocery sector is forecast to grow by 15% in the next five years.
The convenience channel is expected to outstrip this as it is predicted to benefit from changes in lifestyle and shopping behaviour. It is forecast to grow by 18% or £7.1bn to £47.1bn in 2022, at which point it is expected to remain larger than the online and discounter channels combined.
3. The convenience channel remains highly fragmented
Of the c.50,000 convenience stores in the UK, almost 75% remain independently owned (including those operating under symbol group fascia such as Nisa, Londis, Costcutter and Premier). Groups of stores managed centrally (the multiples), including ourselves, only account for 10% of convenience stores. There remains plenty of opportunity to consolidate the sector as we increase our neighbourhood presence through acquisition.
4. Shoppers are spending more on chilled foods
Shoppers use convenience stores to buy a wide range of products, and around 40% of food and grocery trips are now conducted in convenience stores. The frequency of top-up shopping is increasing as standards across the channel improve and fresh food is a fundamental part of this. In 2017 chilled foods was the biggest category for the channel. As shoppers plan fewer trips, food-to-go and meal solutions, which currently represent a small proportion of convenience store sales, are rapidly growing categories.
5. Convenience stores play an important role in local communities
Convenience stores are no longer just a place to buy a few extra items or emergency essentials. They fulfil a wide range of shopper missions at different times of the day – from hot breakfast items to take away to online parcel collection on the way home from work. Services provide a good reason to visit convenience stores and support traditional footfall drivers such as news and tobacco that are in structural decline.
We have a unique and flexible business model
We are the second largest of the multiple convenience retailers, but unlike the largest grocery retailers our stores are typically in neighbourhoods and villages, not on high streets.
Our stores range in size from under 750 sq ft to over 3,000 sq ft. No two stores are the same and our range of products and neighbourhood services are tailored to local needs. Our flexible model means that we can open stores in a range of neighbourhood locations and operate profitable stores on lower sales densities than many of our peers.
We buy from wholesale distributors which means we do not have the investment and working capital impacts associated with a distribution network. It gives us greater flexibility and allows us to focus on the retail operations of our fully managed estate.
We have a clear strategy for growth
Increase neighbourhood presence
We will grow our neighbourhood presence by strengthening our brand and acquiring new stores. Acquisitions drive top-line growth and make us more efficient by spreading our fixed costs. We can also benefit from improved commercial terms from our wholesale partners.
Since our listing on the London Stock Exchange in 2014 we have been acquiring around 60 stores a year and in 2016 we announced the purchase of 298 quality convenience stores from the Co-op. Having integrated those stores in 2017 we have resumed our single store acquisition programme and plan to acquire around 20 stores in 2018.
Growing convenience offer
Our history as a leading newsagent means that our heritage is in confectionery, tobacco and news. These categories are in structural decline and have held back our sales growth in recent years.
Convenience now represents around 80% of our stores and we’re becoming a more food focused business. Not only are we adapting to meet the changing needs of our customers, but food and grocery categories are typically higher margin than our heritage categories and we have seen good growth in our gross margin, a trend that we expect to continue.
Our store refresh programme has provided further opportunity to develop our range, providing more space for fresh and chilled foods, and food-to-go. The early performance of the trial stores is very encouraging and as we rollout this programme we expect it to drive significant organic growth.
In addition, through our groundbreaking supply partnership with Morrisons we will significantly enhance our offer, particularly in fresh and chilled food through the rollout of the Safeway brand in 2018. We expect this partnership to significantly benefit both sales and profit in the future.
Excellent customer service
We are consistently highly rated for colleague friendliness and helpfulness. The majority of our colleagues live locally and are well connected to the local community. Our colleagues are one of the main reasons people choose to visit our stores and they are a driving force in our vision to become your neighbourhood’s favourite shop.
We also have a market-leading services offer, including Post Offices that are open late, fast growing internet collection points, bill payment services, home news delivery, cash machines and national lottery terminals. Our services are profitable in their own right, and they are giving customers more reasons to visit McColl’s.
We are leveraging our financial strength
- We are growing our gross margin by evolving our offer and increasing sales in higher margin categories, as well as achieving better commercial terms on the basis of our enlarged estate
- We are a highly cash generative business and have seen a significant improvement in working capital on the basis of more favourable supply terms and a bigger estate
- We’re investing in strong payback capital projects. Whether it’s new acquisitions, store refreshes or new Subway partnerships, our capital projects are typically between two and four years
- We are optimising our estate. We review the profitability of all our stores based on forecasts of cost increases and we close or sell those that are unprofitable or marginally profitable so that we maintain a good quality estate
To drive sustainable business growth and returns for shareholders
We optimise our capital allocation, striking the balance between investing in the business to drive sustainable growth, managing our debt position and providing good dividends for shareholders.