Kiddicare – a grown up purchase?

The 15th February saw the shock news that Morrisons had acquired Childrens e-tailer Kiddicare for £70m, shock because non food wasn’t particularly on the agenda with Morrisons. Almost forgotten about with the noise about online, convenience and the various trials that are running. Not a shock within Kiddicare as it was up for sale and indeed Retail Week had run a piece the week before stating 4 parties were interested but there was no mention of Morrisons.

Kiddicare on the face of it make perfect sense for Morrisons, they come relatively cheap at £70m and with the deal Morrisons acquire everything, the brand name, management, freehold site with DC and offices and the jewels in the crown – their online bespoke software, online presence and I-phone apps.

I say it makes perfect sense because it’s a low risk high reward purchase, they acquire a company that are 2nd in terms of web traffic behind Mothercare for baby and toddler purchases and are a brand with trust – vital within the sector.

Non food had been overlooked by many at the analyst presentations due to the relatively saturated market – certainly Sainsbury’s were feeling significant pressure to motor into non food due to their poor margins, Morrisons less so due to their excellent margins in food thanks to vertical integration in the main.

The space also becomes an issue, to display non food effectively there is a real need for space and where does it come from? Market Street (analysts stating that was outdated and should go not so long ago) is now a massive part of the marketing and theme of Morrisons so that remains, the Grocery needs revamping and PL is a priority but there isn’t the room to save there considering Dalton wants to improve the brand vs own label share anyway.

It appears that the Kiddicare acquisition is totally free from any food interference and it will be run as a stand alone business to service the non food online market. Morrisons intend to target it with their online offering, supported by click + collect and store order points. It seems a logical choice considering Morrisons stores are landlocked by the excellent food offer and even with project ‘Liberate’ it’s unlikely to free up the space to run a full non food offer, coupled with the increased warehouse space you need for non food lines and it’s a non starter.

There are issues with the online only market though, Morrisons don’t have a discernible non food offering so attempts to get customers to purchase without seeing the product will be difficult, there is no existing brand appreciation for Morrisons Non-food so this will not drive customers to purchase. If anything the existing opinion of non food offer is that it’s poor to middling.

There is a real challenge in a marketing sense to get customers to part with their wares for non food for a product they won’t have ever seen in a store. Similarly with the George Davies rumours regarding a clothing range – without definitive space they couldn’t just offer it online as customers won’t buy without trying. The rumoured 100 stores could well be taken on the high street if any deal went ahead, considering the Peacocks chain is up for sale, an acquisition could be taken there – although that would be unlikely.

It’s an interesting move for Morrisons but one that will alleviate some online pressure from Dalton’s shoulders and prevent the analysts from talking about their love of ‘online, convenience, expansion’ as Dalton has indicated he is to do all three over this year and pushing into next year. He will also tackle the ailing Private label and recent hirings show he is determined to resolve this issue.

The push into online food did look very likely when the acquisition was announced but Dalton has indicated that the software won’t necessarily work for Food and the non food / food is a very definite split within Morrisons. This was perhaps a little more surprising as it appeared that they had bought a ready made software platform and standalone DC and the technology to operate it, considering Dalton saying he would run online from fulfilment centres it did seem a ready made fit.

Thinking back to Dalton’s first real presentation, he did indicate that he’d do online where Morrisons were strongest, deepest Peterborough (indeed anywhere south of that) isn’t strong for Morrisons at all. I’d expect a trial around Bradford or Leeds and it’s worth nothing that the former Morrisons Head Office site on Thornton Road is still vacant and would form a suitable base at 4.66 acres. However it is currently under offer according to the Morrisons property website.

Where that leaves the online effort remains to be seen and I’m sure Dalton will be updating on 10th March at the finals with locations, type of centre, offer and also the long awaited move into convenience which was expected to be trialled but the acquisition of 14 Netto stores looks to push that along, I’d expect a trial store to pop up somewhere – there is a flatter structure to be in place in these stores.

All eyes on the 10th March and the next phases in Dalton’s plans and interestingly what learning he is taking from the labs – keen readers of the blogs have had a sneak preview of the ‘fresh’ lab but what will be rolled out remains to be seen.

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Grocery Insight provide market insight on the UK sector with a focus on individual retailers such as Tesco. This insight is useful to various stakeholders and due to my store based focus. Insight can be delivered to suppliers to focus on growth opportunities, analysts and investors to assess the business performance and long term outlook and retailers themselves to assess best practice.