Morrisons courts against supermarkets with Myton supply agreements

The Bradford-based grocer is offloading its Myton manufacturing arm to Sainsbury’s and other supermarket rivals as it tries to reduce the £3.1bn debt pile it inherited from its 2021 takeover.

Morrisons is in advanced talks with rival British supermarkets to start supplying them with pies, meats and eggs produced by its Myton manufacturing unit, as chief executive Rami Baitiéh hunts for new sources of income to ease the consumer’s heavy debt burden.

The Bradford-based chain, one of the so-called Big Four, is understood to have brought shoppers from rival stores into the Myton factory in recent weeks, with Sainsbury’s among buyers who have previously visited the production facilities. The push marks a significant change in stance: Morrisons has historically guarded the exit of its 17 UK manufacturing sites as a competitive environment, but is now willing to feed the shelves of rivals if it brings volume to a profitable third party.

Myton is one of the country’s largest food manufacturers and produces Morrisons’ sweet and savory pies, while also selling meat, fish, eggs and even flowers to the supermarket. It already works for a number of independent retailers and is now being exported to major hospitality groups, with showcase events held in recent months to highlight its British-made credentials.

£3.1bn of debt passed through CD&R takeovers

The broader strategic context is hard to ignore. In its latest set of accounts, covering the 52 weeks to 26 October, the grocer posted a pre-tax loss of £381m after taking £281m of interest on its borrowings. Total debt stood at £3.1bn at the end of the year, the sum from a £10bn buyout by US private equity firm Clayton, Dubilier & Rice in 2021.

Morrisons has been trading at that price, with total debt reduced by around 46 per cent from the 2022 collection, helped by a series of sale and leaseback deals, but interest costs are still reported to be profitable. Underlying profits of £835m and twelve consecutive quarters of like-for-like sales growth, as detailed in the company’s full-year results, suggest that the operating business is in significantly better shape than the bottom line suggests.

This is where Myton comes in. Although Morrisons does not disclose numbers for the unit, it is widely understood within the business to be profitable, with remaining manufacturing capacity that managers believe could be leveraged by serving a wider customer base, both domestically and overseas.

Closures, cafes and structured inheritance

The supply-side is pushing the world closer to a dynamic cost system. Morrisons has confirmed plans to close 100 stores, closed a number of in-store restaurants, counters and florists, and has been renovating large offices as it relies on automation and AI. Earlier this year, Myton itself closed its loss-making bakery in Wakefield as a sign that it was no longer part of the holy kingdom.

The competitive pressure has not subsided either. Discounters Aldi and Lidl continue to nibble on the heels of the traditional Big Four, with Aldi overtaking Morrisons to become Britain’s fourth largest supermarket by market share, a change that has sharpened the urgency of any plan capable of expanding the grocer’s pool.

The sale was considered, then stopped

The latest contact follows an episode earlier this year, first reported by The Telegraph, in which Morrisons received an unsolicited approach to Myton and held talks with at least one private seller about an outright sale. The Grocer then reported that the supermarket was no longer in active talks to divest the unit.

Mr Baitiéh has taken a keen interest in keeping production in-house. In January, the Frenchman, who joined Carrefour in 2023, said that direct integration “is part of Morrisons’ DNA, it will remain”, saying that being industrial gives the retailer a point of difference against rivals who rely on a patchwork of external suppliers.

For SME food producers looking from the sidelines, the movement has two sides. Morrisons remains a major buyer for Britain’s farmers and small food businesses, but commercially aggressive Myton, which sells pies and meats to Sainsbury’s, hospitality chains and beyond, could drive out smaller rivals or open up new co-production opportunities, depending on how contracts are structured.

A spokesman for the supermarket said: “Myton is a high quality food manufacturing business and has been serving other customers as well as Morrisons. We have been growing this business area in recent years by attracting new customers in retail, food service and food manufacturing, to build a wider business base in the UK and internationally. Myton does not comment on the details of its customer relationship.”

What does it mean to repent

Take out the headline loss and the picture at Morrisons is one of a slowly recovering grocer: strong Christmas trading, a 17.4 per cent jump in sales of its premium “Best” range, and a debt pile that is shrinking rather than long. Pushing Myton’s product onto a competitor’s shelves is unlikely, in itself, to create a debt crisis, but it is a cash-strapped lump that uses existing assets, and one that Mr Baitiéh appears willing to pull.

If early site visits turn into supply contracts, expect Morrisons’ annual report to begin to reveal Myton’s offering more clearly. Investors, lenders and, ultimately, any future bidder would all want to see it.