As the stock market begins to calm somewhat following the frenzy of the all-important Christmas trading updates – with a few big hitters such as Poundland still to come – it has become clear that sales in grocery have actually held up pretty well. The listed supermarkets all put in better-than-expected performances and Waitrose and Ocado benefitted from the explosion of online shopping. Even Thorntons, which warned on its profits in the days before Christmas, reported this morning like-for-like retail sales growth of 7.8% - albeit tempered by poor UK commercial figures.
Majestic Wine was another business which achieved festive growth, but at the expense of margin as it cut prices to tempt in customers. However, rival off licence group Conviviality Retail showed this morning, when it reported its half-year results and Christmas trading, there was room for improvements in the top and bottom lines.
Pre-tax profit before exceptional items climbed by 46.7% to £3.2m in the 26 weeks to 26 October at the Bargain Booze and Wine Rack owner, despite sales dipping slightly from 183.7m to £182.9m. Conviviality, which operates 599 shops, also said it experienced strong Christmas trade in the two weeks to 4 January with growth 2.6% above last year and like-for-like sales up 1.2%. And, importantly, it was achieved “without the need for investment in margin”.
CEO Diana Hunter, who joined the group from Waitrose in 2013, says: “We had a profitable Christmas for Conviviality and for our franchisees. It is pleasing that our retail sales beat last year by 2.6% and our franchisees witnessed trade coming into their stores during the weeks when shoppers would have traditionally visited supermarkets, an indication of customers shopping little and often and shopping locally in line with widely reported industry trends.
“Like-for-like sales were very satisfactory at 1.2% up and pleasing given the competitive nature of the market.”
She told The Grocer in a call earlier today that not only were the like-for-like numbers positive for franchisees but their margins also improved leading to a rise in cash profits.
So how did Hunter and Conviviality achieve this boon?
“We had a really clear plan for Christmas,” Hunter adds. “It is really important to us that we are really clear about our proposition. We know what we stand for: we’re an off-licence led convenience retailer. We make sure we target our offers and promotions to meet our customer need. And that is what we did; we stuck to our plan. We listened to our franchisees and their insights of what they believed would be the right offers for their customer base; and that is what we delivered.
“We didn’t spend any more money on our Christmas promotions than we intended to spend. That has resulted in profit for the franchisees and for the company.”
Investors were also impressed at the news sending the share price up by more than 6% to 136.25p.
Analyst John Wilson from Zeus Capital says: “Conviviality’s half year results and Christmas trading update should be reassuring to investors that the management continue to be successful at transforming this established business in the discount off-licence led convenience store sector. The company has maintained its price differential in a very competitive pricing environment, and as the portfolio continues to improve, there has been a resultant uplift in profitability.”
He attributes part of the success of the company down to Hunter’s and the management team’s efforts to build a reputation as a franchisor which generates value for its franchisees in a bid to stimulate further growth.
“Over 50% of Bargain Booze stores are now benefitting from the new fascia, while franchisee purchasing loyalty continued to increase, with average wholesale sales per store up 1.1%. We expect to see further improvements at the franchisee level this year. Stores are still being closed as steps are taken at improving the quality of the portfolio, and this should lead to increased prosperity for the franchisees.”
Hunter echoes the sentiments about the importance of keeping franchisees happy. “The most pleasing thing about the figures is that although we’ve delivered a good result in profitability, we’ve also made sure we’ve our franchisee profitability as well. The company has been successful in the first half and our franchisees have as well. That is always very important to us.”
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