Stretching too far from the core has cost UK supermarket chain Morrisons a whopping £163 million. This is the total write-off announced when it recently sold the Kiddicare business for just £2million, three years after having bought if for.... £70 million. "A disastrous attempt by Morrisons to diversify into prams, buggies and cots" is how The Times describes this botched brand stretching attempt, here (subscription needed).
What can we learn from this sorry tale?
Morrisons had several years of success through focusing on fresh food sold at affordable prices, as I posted on here. In contrast, Kiiddicare was an online baby goods business, which has nothing at all to do with fresh food as far as I can see. The Morrisons brand added nothing much to Kiddicare, and vice versa.
2. Define your business model
Even more important than fit with your brand idea is fit with your core business model. A key part of Morrisons' freshness positioning was an integrated supply chain, including fishmongers, butchers and the like. Buying an online babycare business did nothing to help this business model more effective. And Morrisons lacked the competences to make Kiddicare stronger. Indeed one of the Kiddicare founders suggested a key issue was "The lack of integration with Morrisons’ core business."
3. Experiment the right way
Morrisons rightly identified the lack of an online offer as an issue back in 2011 and the Kiddicare purchase was supposed to help address this issue. At the time, CEO Dalton Philips said that the Kiddicare aquisition was: “Our first foray into learning about a channel we don’t understand very well.”
However, perhaps there would have been a more effective way of learning about this channel, rather than buying an online business with no link to the core? In the end Morrisons did find what looks like a better solution by striking a deal with Ocado, the online supermarket.
4. Neglecting the core
Morrisons has clearly destroyed the value of Kiddicare in three years. The other problem though is that this acquisition may have also distracted time, energy and talent away from Morrisons' core business, just when it needed real focus. Back in 2011, at the time of the Kiddicare acquisition, Morrisons announced excellent profit and revenue growth. However, the combined effect of the recession, growth in discounters (Aldi and Liddl) and a strong Sainsbury's brand contributed to several years of under-performance. Not buying Kiddicare wouldn't have solved all the problems, but the extra focus on the core might have helped a bit.
In conclusion, any stretching beyond the core needs to be assessed in terms of brand fit, but more importantly on your "ability to win". Do you you really have the competencies and business model to make the new venture work? And will it help not hamper your attempts to grow your core business?