McColl’s Retail Group PLC (LON:MCLS) shot higher as it agreed a £1bn grocery supply tie-up with Morrisons (LON:MRW) that will eventually replace its existing agreements.
Morrisons will supply Safeway products and other national brands to 1,300 McColl's convenience shops and 350 newsagents across the UK starting in 2018, with profits from the deal expected to start accruing from the following year.
A new Safeway range of 400 fresh, frozen and ambient food products will also be exclusively available to McColl's for a year.
READ: Morrison's and McColl's put Tesco under the spotlight with 'win-win' combination
Jonathan Miller, chief executive of McColl's, had said previously the group had received five tenders for the supply contract, but Morrison’s' outstanding food manufacturing capability set it apart from the competition.
“This is a defining moment for McColl's and builds on the transformational deal we announced last year to acquire 298 high quality convenience stores [from the Co-op]."
Shares in McColl’s rose by 10.65% to 254.50p as brokers suggested the deal can add 20% to sales and profits forecasts by 2019.
Nisa deal with Sainsbury’s unaffected
McColl’s is currently supplied by Nisa and cigarette supplier Palmer & Harvey, both of which stand to lose significant income from the appointment of Morrison’s.
Nisa is in talks with Sainsbury about a £130mln takeover by the grocery giant, but said today that the loss of the McColl’s account would not affect this even though that contract accounts for about two-fifths of its revenues.
Nisa was awarded the McColl’s business in 2016.
For Palmer & Harvey, the loss comes at a potentially difficult time as its biggest customer currently is Tesco, which is in the process of acquiring cash and carry giant and Palmer's major rival Booker.