Yes they can, says Peter Cripps. But they will have to raise their games dramatically if they are to claw back share from the supermarkets and start making money again


Off-licences are in the fight of their lives to avoid a "long, lingering death," one booze retail boss admitted frankly to The Grocer last week. His pessimism is understandable.

The past few years have been awful for the off-licences. First Quench Retailing, which owns the Threshers, Wine Rack and The Local fascias, has halved its store estate to 1,000 over the past three years and made a pre-tax loss of £30m in the year to June 2008, prompting auditors to question the long-term viability of the business.

Of the eight specialist off-licences in The Grocer's Top 50 list of independents, half - Oddbins, Wine Cellar, Tanners Wine Merchants and G101 Off Sales - made losses in the last year for which accounts are available. And of the remaining four, Curley's Supermarkets, Wineflair and Winemark suffered a reduction in turnover only Rhythm & Booze managed to increase turnover and pre-tax profits. So what can off-licences do to fight back?

It is no coincidence that while off-licences have struggled to grow market share over the past year, the multiple supermarkets have seen theirs grow sharply, their respective sales rising 0.5% to £4.4bn and 8% to £9.1bn in the year to 11 July [Nielsen].

Off-licences have been quick to point the finger of blame for their own poor performance at their supermarket rivals, and more specifically their deepcut promotions. "Over recent years the big four have been ripping the heart out of the market by offering footfall-driving deals on alcohol," says the booze retail boss bluntly.

His claim is substantiated by IRI data revealing that 64.6% of the beers, wines and spirits sold by the multiples in the 12 months to July were on special offer.

But people's drinking habits have changed dramatically as a result of the ban on smoking in public places and the recession and while this is not good news for the on-trade, it spells opportunity for the off-trade. Off-trade accounted for 4o% of booze sales by value in the year to May compared with the on-trade's 60%, according to Nielsen, and will hit parity with the on-trade within the next few years, predicts Nielsen's alcohol specialist Graham Page. "We are moving to a US model where we drink as much at home as we do out of the home. This is a big opportunity for the off-trade," he says.

In theory, the opportunity is equally big for the supermarkets, but since it's their booze promotions that have been the target of anti-binge-drinking campaigners, off-licences could be in a position to exploit it more effectively. The key is to ensure they offer something shoppers can't get in a supermarket, says Martin Swaine, MD of Rhythm & Booze. In April, Rhythm & Booze launched its own range of beers under its own label The Barnsley Beer Company. Later this month it will add draught ale to the bottled offer, selling it in sealable four-pint take-home jugs.

Oddbins, meanwhile, sells unusual foreign lagers such as Thai beer Chang and Argentinian brand Quilmes, which it is pushing with a competition to win a holiday for two in Argentina.

Real ales particularly those produced locally and that create a point of difference offer better margins than the big lager brands, says Page. Another benefit is that because the price points are higher than typical supermarket offerings, retailers are less likely to be dragged into the cheap booze row. Some off-licences are also trying to challenge the status quo by looking beyond alcohol. Rhythm & Booze, for instance, is trialling a joint store with freezer centre Frozen Value that, if successful, will be rolled out to several other sites in Yorkshire. And Wine Cellar and Bargain Booze have launched convenience fascias.

Off-licences have started to realise shoppers react well to knowledgable, properly trained staff, adds Robert Boutflower, sales director of Tanners. "People choose their wine carefully and want to trust the person they are talking to," he says. "We have 1,600 wines and we know a fair amount about all of them." Tanners is about to double the amount of time spent on staff training every month, he adds.

Although the likes of Waitrose have started to introduce wine experts, they have only done so on a fairly small scale leaving the way relatively clear for the specialists. Consumers also like tastings, another area in which the specialists are trying to steal a march on their big box rivals. Majestic Wine and Tanners have both offered tasting sessions for some time and Oddbins is now starting to run more. A recent survey by research agency Him! also found that more than a third of people who used off-licences would like more food-match tips another opportunity.

Off-licences are also adapting their offers to meet consumer demand for smaller 'top-up shop' pack sizes of beer. Rhythm & Booze is doing sharp pricing on smaller pack sizes for impulse, such as four-packs of beer, for instance.

Swaine says online is something else it is "considering for the future" and it's easy to see why. Sales of alcohol online have increased 30% over the past year to £260m, with 11% of households now buying booze online [TNS].

But being able to boast unusual beers, knowledgeable staff, small pack sizes and online services will only go so far. The off-licences also have to raise their games on the pricing and promotions front. That message is starting to get through. Wine Cellar now offers a deal on cases of wine, Oddbins offers 20% off the price of a mixed case and Rhythm & Booze and Irish chain Curley's use their membership of buying group Nisa-Today's to sniff out deals.

"We have always done promotions, but they are now more important than ever," says Curley's proprietor Hugh Kennedy, who rotates promotions on a three-week cycle to keep them fresh and also advertises them in the local press.

It's important to make sure such tactics don't backfire, of course. "FQR's buy-two-get-one-free deals have actually helped to lower its price perception," says one industry insider. Get the promotional balance right, however, and there's no reason off-licences can't make a go of it, says Swaine. "There is still a market there for an off-licence that can offer interesting deals at affordable prices," he insists.

FQR's acting CEO Martin Healy is equally bullish about the future, having unveiled a transformation programme he believes will return the business to profit within two years. Despite a sobering few years for the sector, the writing may not be on the wall quite yet.


Quirky wines bring a change in fortunes for oddbins
One year after it was bought from Castel Freres, Oddbins claims it is well on the road to recovery. The ailing business was snapped up last August by Simon Baile son of previous owner Nick Baile and his brother-in-law Henry Young for a sum thought to be well below the £57m paid by Castel in 2001.

Big changes needed to be made for the business to return to profitability and Simon Baile has not shied away from them. His team have already ditched 1,500 of the chain's 2,000 SKUs and have replaced them with 350 new lines, with another 170 due to hit shelves by the end of the year as part of an ongoing range review. Many of these products have never been sold before in the UK, and are a direct attempt by Baile to restore Oddbins' reputation for quirky, unknown wines.

Marketing director Martin West feels the future is bright for Oddbins, although he won't be drawn on when he thinks the business return to profit.

"The opportunities for indies versus the supermarkets and other competition is very positive," he says. "Oddbins was a flagging brand. There was an opportunity for someone to inject passion back into the chain. The whole market is all about price but customers will pay for what they want. Since Simon and Henry came in the focus is on putting the spark back."

Three-quarters of Oddbins' SKUs are wine but it has also revamped its malt whisky section and has started to stock unusual beer such as Argentinian Quilmes and Thai Chang.

West says the availability problems the chain experienced in the new year were caused by "a storming Christmas", which meant it sold more stock than forecast. The supply issues have now been resolved, he insists.

As well taking on the supermarkets by stocking a wider range of brands, the 131-store chain is discounting too, offering a 20% reduction on mixed cases of wine.

"Our new ranges have been particularly well received because we can offer customers something different," West says. "If people are staying in for the evening, they are happy to spend an extra £1 or £2."