Strong rumours in the trade indicate that Costcutter is not going to sign a new supply deal with Nisa but forge a radical and controversial agreement with multiple retailer Morrisons instead.

Morrisons has repeatedly expressed an intention to expand in the convenience store sector but currently has no dedicated supply chain for small stores, with the five M Local outlets currently supplied directly from nearby supermarkets. In order to increase its c-store holding significantly, it will need to create a distribution network from scratch, and a long-term supply contract with a symbol group such as Costcutter will enable it to achieve the necessary scale.

The company may also want to recruit some of the better-performing Costcutter stores to be M Local franchise outlets. Morrisons’ chief executive Dalton Phillips was formerly chief operating officer of Canadian retailer Loblaw, whose small stores are all operated by independent franchisees, and the multiple has reportedly been looking at possible franchise opportunities for some time.

“We are committed to the future of this business. We want to deliver the right service and the right solution, and be able to look back in five years time and say we delivered exactly what we wanted.”

Nick Ivel

Costcutter chief executive

“We’re building on great foundations with Costcutter, and want to retain everything it has achieved so far. But we are also looking to move the group up to the next level, and we are now in a position to invest more easily and make more acquisitions in the future.”

Sir Michael Bibby

Bibby Line Group managing director

In an official statement, Costcutter declined to confirm or deny the rumour, saying: “Costcutter Supermarkets Group is committed to securing the best possible supply deal for its retailers and negotiations are continuing. We are frequently linked to many different organisations and we do not comment on any speculation.”

In an earlier interview with chief executive Nick Ivel, he told C-Store that the new supply agreement will be “the best in the industry”.

“We will honour the existing contract with Nisa (which has just over two years to run), but after that we will have the best offer in the marketplace, no question,” he maintained. “We have two or three options left, and will be ready to make the announcement within the next six weeks, and certainly by the time of the September conference.”

Ivel admitted that Costcutter retailers were under pressure from other symbol groups to change allegiance, but he urged them to sit tight for the next couple of months.

“We know retail members will be approached by other groups, but that will only be for short-term gain,” he said. “What we’ve got lined up will definitely make us the symbol group of choice, with better prices, better promotions and a service equal if not better than currently experienced. We’ll have the right range, and the solution will be the best for our retailers in the long term.”

Ivel added that there will be “an individual service, tailored to each store”, which suggests that there could be a two-tier distribution network for Costcutter with a second distributor such as P&H providing a service for some outlets.

Costcutter is also making considerable investment in IT, including an upgrade to the C-POS system and the trial of an internet-based home shopping solution, while former IT director Kevin Widdrington has returned to head office. The group is also expanding its Academy management training programme with additional modules.