Morrisons contemplates Costcutter's offering

Morrisons is considering acquiring a substantial number of stores from Costcutter − a move that would transform the supermarket chain's presence in the smaller store market in one fell swoop.

The UK's fourth-biggest grocer is in talks with the financial services and shipping company Bibby Line Group, which owns the Costcutter chain of independent convenience stores, over the deal.

Bradford-based Morrisons launched its first convenience stores under the "M Local" banner in June last year, and so far has opened just five of these. It recently vowed to have 70 of the stores, which span up to 3,000 square feet, by early 2014.

However, it is relatively late for the retailer to be entering the market for smaller shops, a sector that is dominated by Tesco, Sainsbury's, the Co-operative Group, Marks & Spencer and independent operators.

Morrisons chief executive, Dalton Philips, is believed to be considering acquisitions to put a turbo-charger under the chain's growth plans.

The grocer's talks with Costcutter are believed to have been ongoing since the end of last year. A source said: "The Morrisons and Costcutter deal is still alive."

Morrisons declined to comment, while Bibby Line and Costcutter did not respond to requests for comments over the weekend.

The talks with Costcutter come at a testing time for Mr Philips, who last month unveiled the first fall in underlying quarterly sales at Morrisons for seven years.

Founded in 1986, Costcutter – whose managing director is Nick Ivel – has about 1,500 convenience stores in the UK and the Republic of Ireland that are primarily run by franchisees.

One of the options on the table is for Morrisons to acquire Costcutter's 157 company-owned stores. Another option is that Costcutter franchisees could sell out to Morrisons or strike a deal to benefit from the supermarket chain's buying power.

Bibby Line Group could also play a role in helping Morrisons to establish a nationwide supply chain of convenience stores. This type of store requires a different product offer and smaller delivery vehicles to bigger supermarkets.

Costcutter is also mulling over its options in the buying partnership it has with Nisa-Today's that expires in 2014. The chain may sign a new contract or find a new partner.