Bidding for Nisa

A bidding war is taking place between the Co-operative Group and Sainsbury’s to acquire Nisa – the Northern Independent Supermarkets Association and itself a co-operative of grocery traders.  Nisa provides a franchise model across 3,466 convenience stores, owned by 1,300 members.


It might be assumed that owners of a mutual would prefer to sell to another mutual.  But, according to the Financial Times, Sainsbury’s are offering a bigger price, thought to be around £2,500 for each one of the almost 60,000 shares.  (Sainsbury’s declined to comment, telling us “Afraid we don’t comment on market speculation.”)  “The Sainsbury’s offer was unanimously considered to be superior with more cash upfront, more certainty and more flexibility in what it offers members,” one person ‘familiar with the process’ was quoted by the FT as saying.


Nisa is also not discussing the proposed acquisition – it failed to respond to our request for comment.  But a sale offers a solution to a difficult financial situation.  The business reported an underlying loss of £5.4m in 2015, which turned into a £0.6m profit last year.  The loss was the result of losing a contract to supply the Costcutter chain, after the owners of Costcutter were rejected in their attempt to buy Nisa in 2013.  (Costcutter offered £134m – similar to what Sainsbury’s are reportedly offering now.)


Nisa is a sensible target for both Sainsbury’s and Co-op Group.  It is widely recognised in the grocery trade that the convenience store sector is where much of any future growth resides, especially in an increasingly ‘time poor’ society.  Shoppers are more often now buying for the next meal rather than trying to buy all the food and suppliers for the next week.  Convenience groceries is a niche where Tesco has established a strong presence, which is set to grow even stronger through its recent acquisition of Booker’s (which owns about 5,000 Premier, Londis, Budgens and Family Shopper branded stores).


However, there is some confusion over Sainsbury’s growth strategy since its former chief executive Justin King departed two years ago.  The company entered into a joint venture with Danish low cost chain Netto to compete against the Lidl and Aldi brands, but then pulled out of the project after just two years, closing the 16 stores the partnership had opened.  It reportedly concluded that it could not achieve the scale necessary to properly compete.


The rationale for the pull-back was also to enable Sainsbury’s to focus on its acquisition of the Argos brand.  Sainsbury’s believes that Argos’s expertise in home deliveries provides a more lucrative direction for the business.


But the reported bid for Nisa suggests that Sainsbury’s is also heading towards expanding its convenience store operation.   For any grocery business that does want to expand its presence in that sector, opportunities are apparently limited.  Most prime locations are already occupied.  While Sainsbury’s has been seeking new stores, it has hit a ceiling via organic growth with only 25 new Sainsbury’s convenience stores scheduled to open this year.


It is an arguably even more important opportunity for the Co-operative Group, which restricts itself in terms of grocery retailing to convenience stores.  It has long been seeking additional outlets, but organic growth can be a slow process.  Adding another three and a half thousand stores would bring substantial benefits to the Group in terms of economies of scale as well as £1.4bn in turnover.  Ironically, the Nisa chain includes 90 former Co-op stores which McColl’s bought from the Co-op Group last year.


It is unclear exactly how a Sainsbury’s deal would be structured – whether the stores would all be owned by the giant retailer, or if it would operate as a franchise with existing Nisa members becoming Sainsbury franchisees.  While some inside Nisa say that the detail of the Sainsbury offer was better for its members, others disagree.  The Guardian quoted one person close to the negotiations as saying: “The Co-op would have been a better fit for its mutual values.  Sainsbury’s is just a PLC trying to do what Tesco has done. It’s an extreme outcome, Nisa has no need to sell itself.”


That, reportedly, is not the view of the Nisa board.  Chief executive Nick Read has warned members that Nisa faces a big squeeze between the discount retailers and the expanding Tesco convenience empire.  Fear of the future is as much the motivation as the shock of the recent trading losses.  It is worth noting that Nick Read has faced internal opposition to his radical restructuring of Nisa.  Read only arrived at the company in 2015 from Thomas Cook, where he was Group Customer Service Director and would presumably have had close relations with the Co-operative Group.


The stakes for both the Co-op Group and Sainsbury’s are high – as indeed they are for Nisa’s shareholders.  In the end, it may be what is on offer beyond the price that seals the deal.



Paul Gosling

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