It said it will sell 140 M local stores for around £25 million in cash to retail entrepreneur Mike Greene, who is backed by family investment group Greybull Capital.
Mr Greene said the chain will be rebranded My Local, and he plans to keep all of its 2,300 staff. He added the new management plans to create 200 further jobs by opening 10 more stores.
Morrisons said after carrying out a review of the shops that the convenience business would have “required significant further investment” in new sites, lease commitments and additional capital spending to make a profit.
The supermarket said: “Today’s sale announcement represents the best solution for Morrisons and will enable future Morrisons investment to be focused on core supermarkets.”
Greene said: “The convenience sector continues to grow ahead of larger supermarkets as people’s hectic lifestyles increasingly lead them to favour more frequent, smaller and top-up shops.”
Morrisons added it expects to take a £30 million hit on the disposal, adding that it retains the leases on the convenience store units which could revert to Morrisons if the new business fails. In this case it estimates its contingent liability would be another £20 million.
The supermarket said the M local stores being sold posted an operating loss of £36 million in 2014/15. It added that the stores are budgeted to make operating loss of £23 million in 2015/16.
Convenience stores, along with online shopping, are one of the few growing parts of the grocery business, which is in the middle of an intense supermarket price war as discounters such as Aldi and Lidl battle major players such as Tesco and Sainsbury’s.
Chief executive David Potts said: “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.”
Mr Potts added that he remained open to other opportunities in the convenience store sector in the future.
The supermarket said it will retain five M local stores, which are either on forecourts or will be converted to small Morrisons supermarkets.
Morrisons said it conducted a review of the convenience business in March once new chief executive Mr Potts took over as chief executive from Dalton Philips.
Mr Philips was ousted 12 months after the announcement of a three-year £1 billion programme to cut prices to fight the supermarket price war.
Morrisons is expected to post another slump in half-year profits tomorrow, which will leave investors keen to hear the turnaround plans of Mr Potts as he presents his first set of results to the City.
Brokers at Barclays expect the Bradford-based chain to post a 2.5 per cent fall in half-year like-for-like sales, and a 23 per cent fall in earnings to £203 million compared to a year ago.