Wine Cellar and Threshers went bust. Oddbins is on the brink of a CVA. So who would want to buy Bargain Booze and why? Elinor Zuke reports

If the demise of Unwins, Threshers and Wine Cellar put the writing on the wall for the traditional high street offie, news that Oddbins is seeking a CVA to stave off the same fate has underscored and italicised the problem.

Next Thursday Oddbins’ creditors who are owed a total of £20.7m will vote on whether to accept a Deloitte-sponsored CVA that would pay them back 21p for every £1 owed.

Whether the creditors accept the CVA in the hope of seeing the chain return to profit, or prefer to claim back any unsold stock from Oddbins’ premises, will be a referendum on its business model.

And while owner Simon Baile is adamant the company can trade its way out of trouble, the list of sceptics over the future of the off-licence is even longer than the list of over 600 creditors.

As Morrisons CEO Dalton Philips says: “Fundamentally the speciality purchase of a heavy bulk product where you can’t park is dead,” says Morrisons CEO Dalton Philips. “You buy alcohol in a supermarket, online or at Majestic Wine where you can park.”

The contrast with Bargain Booze could not be more pronounced.

ECI Partners, which bought the franchise chain for £63.5m from BWG in January 2006, trebled pre-tax profits to £4.3m in its April 2010 accounts. And last month it appointed its own set of advisors, KPMG only this time to provide guidance on a sale or refinancing.

“ECI wants out,” a City source has told The Grocer. “It’s made a reasonable return as it’s been well run, paying down its debt and generating a lot of cash.

“But after five years, the private equity house is looking for exit options, and the biggest question is not whether it’s for sale but who would want to buy it and for how much.”

Turnover has grown modestly from £358.9m to £371.2m in the four years to 30 April 2010, but the franchise model has consistently delivered excellent cash returns in excess of 100% for shareholders.

Its success has been predicated on a focus on bulk sales of primary and secondary brands of beer and cider which contrasts starkly with with the strategy of Oddbins, Threshers, Unwins, Wine Cellar and other failed off-licences.

“We focus the majority of the business on discounted alcohol, and that has helped us substantially during the recession,” says Bargain Booze commercial director Mark Crabtree.

“The problem with Oddbins is it’s a specialist wine shop and the current marketplace doesn’t support that kind of business right now,” he adds.

Crabtree also attributes its success to diversification into convenience stores. “C-stores are the biggest growth area right now. We have developed a number of permutations, but alcohol is always the most important in excess of 40% of turnover in our c-stores. The market average is 22%.”

By operating a franchise model, Bargain Booze has also escaped the worst of rising property and wage costs, adds Finncap retail analyst David Stoddart. “It collects franchise fees from all the little owner managers who are clearly very heavily motivated. And the stores tend to be in lower cost locations.”

But the franchise model, together with the category, would make a private equity sale unlikely, says the City source.

“The category is littered with dead bodies. So while profits have increased, a buyer would need a strong constitution.

A trade sale is the more logical choice, he adds and might be used either defensively or offensively by a symbol group. “It could take out an effective competitor; but it might also benefit from better terms. Bargain Booze has shown it can buy very competitively and, like Tesco with T&S, a buyer could buy more cheaply.

“The price is not going to be a big multiple,” he adds, “but on EBITDA of £13m to £14m, a tag of £80m is certainly achievable if the fit is right.”

Read more
Oddbins rescue plan offers creditors just 21p in the pound (17 March 2011)
Oddbins to axe a third of its stores after strategy review (8 March 2011)
Are indie off-licences doomed? (analysis; 11 December 2010)