WM MORRISON SUPERMARKETS 
LONDON (Reuters) - Britain's fourth-biggest supermarket group Morrisons (>> WM Morrison Supermarkets PLC) is pulling out of the fast-growing convenience store sector, agreeing to sell its 140 "M local" shops for 25 million pounds ($38 million) to focus on improving its core larger stores, it said on Wednesday.
David Potts, the former Tesco (>> Tesco PLC) man who succeeded the sacked Dalton Philips as chief executive in March, has said his priority is improving the more than 500 core supermarkets and making the group simpler, leaner and more cost conscious.
Morrisons is selling the loss-making convenience business to a team led by retail entrepreneur Mike Greene and backed by investment firm Greybull Capital.
Greene, who plans to rebrand the stores as "My Local", said the deal safeguarded 2,300 jobs.
Morrisons said it expected to incur a loss on disposal of around 30 million pounds. It will retain five convenience stores, which are either on petrol station forecourts or will be converted to small supermarkets.
The firm also retains a guarantee on individual lease obligations that could revert to it if the new business does not succeed. The residual liability in this event is estimated at up to 20 million pounds.
Morrisons was a late entrant into the convenience sector, opening its first stores in 2011. Though it has since grown at pace, its convenience presence is tiny compared with bigger rivals Tesco and Sainsbury (>> J Sainsbury plc), which entered decades ago, and has little bearing on its profit performance.
Morrisons said in March it would close 23 M local stores during its 2015-16 financial year and would significantly slow new openings. It would also review the M local project and approach to site selection.
It said on Wednesday that review concluded the business would have required significant further investment to reach profitability.
The value of Britain's convenience market is expected to grow by 17 percent to 44.1 billion pounds by 2020, according to industry research group IGD.
“Convenience is a large and growing channel in UK food retailing. Morrisons learnt much from its entry into the market, but M local was unable to scale," said Potts.
"However, we remain open to other opportunities in convenience in the future."
Some analysts say Morrisons will have to re-enter the convenience market at some point if it wants to avoid becoming an ever-shrinking retailer.
Morrisons is expected to report a sharp fall in first-half profit when it publishes results on Thursday.
(Reporting by Neil Maidment and James Davey; Editing by Kate Holton and Mark Potter)
