Costcutter confirms Londis interest

Like Londis, Costcutter​ operates mainly as a supplier of products and services to a network of independent store owners, and as such is not proposing to buy the Londis business outright but rather to persuade the majority of its customers to switch fascias.

In a move echoing that of Big Food Group chief executive Bill Grimsey in December, Costcutter chairman Colin Graves last week sent a letter to Londis store owners offering them an alternative to a takeover or merger.

The Big Food Group, which owns the Iceland and Booker businesses and is seeking to expand its Premier symbol retail operation, has already offered to pay around £40 million for Londis, a bid which would leave each store owner with around £20,000 for their share of the business.

In contrast, Costcutter is offering to pay Londis store owners £10,000 within the first month, followed by another £10,000 payment in each of the two following years.

If Costcutter is successful in persuading Londis store owners to switch fascias - and there appears to be a significant number of the latter who are concerned about losing their independent status if Londis is eventually sold to a group such as Tesco or Sainsbury - it would effectively replace Londis as the biggest symbol group operator in the UK.

Costcutter has around 1,200 independent retailers, and would double this figure if all its Londis targets agree to switch camps. Londis currently supplies around 2,270 affiliates, but would see this figure drop to around 1,100 if the Costcutter offer is accepted.

Like fellow bidder Nisa-Today's, Costcutter's offer plays strongly on the 'let's keep retail independent' card. But with Nisa just a fraction of the size of Londis - and its offer being simply a merger rather than a cash-in-hand proposal such as this one - Costcutter has a significant advantage over its rival.

BFG's offer is clearly lower than that of Costcutter - and indeed is more complicated, since it would involve the takeover of the Londis name and business rather than simply asking store owners to switch suppliers - but there would also be significant benefits to Londis retailers as part of the wider Iceland/Booker/Premier group - not least the economies of scale generated by a group with more than 4,200 stores according to BFG calculations.

The Londis management has appointed KPMG to asses the options for the company, but the mutual status of the company means that direct approaches to the store owners themselves are becoming increasingly common. With trust in the Londis management team at a very low ebb - the initial offer for the chain from Ireland's Musgrave group would have given half the value to the company's directors rather than store owners, a cause of much resentment - Londis shareholders may well feel inclined to take their future firmly into their own hands.

Any switching of sides is unlikely to take place until the full extent of rival offers is known, however, with other groups such as Co-op and Somerfield, not to mention the larger supermarket operators like Tesco and Sainsbury, expected to come forward with bids.

The willingness of Londis retailers to maintain their independent status - and indeed protect the independent retail sector as a whole - is likely to be the deciding factor in this battle, and the sale of Londis to one of the more traditional supermarket groups could have major repercussions for the symbol group operating system as a whole.

Tesco and Sainsbury in particular are keen to move into the convenience store sector - indeed, they have already done so - and alarm bells are sounding as a result. But with the buying power and retail expertise of these larger players likely to prove a compelling argument in the long-term, companies such as Costcutter will have to count on goodwill more than anything else to win the day.