Why does a retail chain that has axed two bosses in four months and is struggling with availability issues buy 45 new stores?
This is no joke - certainly not for Kwik Save employees, who are all working hard to address its woes in the wake of MD Andrew Villars' departure, only months after the loss of former MD Paul Niklas.
The retailer's purchase of 45 Somerfield stores, announced this week, is perplexing, not least because a number of the stores were originally Kwik Saves, kept by Somerfield and converted to the Somerfield fascia when it sold 171 Kwik Saves to a consortium called Back To The Future in February.
The Grocer has followed the progress of Kwik Save closely since the name returned to the high street. Research commissioned by us last month showed availability running at an average of 80% in many categories, way behind leading supermarkets - prompting many observers to question the logic of the deal.
Even the company's own store managers are scratching their heads. One said: "The concern is we can't service our stores now with proper branded stock - it's so hit and miss."
The announcement they received from Kwik Save stores director Steve McArdle last week did little to enlighten them. It simply said: "Over the next few weeks, the stores will all be rebranded and will then trade as Kwik Save. We believe these stores will assist us in developing the Kwik Save brand."
At least it clears up rumours that some of the stores would be used by Kwik Save as test beds for a new format.
Kwik Save won't divulge how much it paid for the stores, but says the £30m refinancing package, announced last weekend, will help develop the new stores and to improve availability.
"Stock availability will be significantly improved, with the funding providing additional resources to guarantee supply," said a company statement.
This begs the question: if the cash is being used to revamp and stock stores, not for buying them, how did it finance the acquisitions? One source speculated: "Kwik Save may even have been paid to take these stores off Somerfield's hands through a reverse premium if the stores
Whatever the price paid, the acquisition of the new stores brings added risk exposure to this ten-month-old venture, no matter how favourable the refinancing package. Or does it?
Of course, it's easy to see what Somerfield gets from the deal. As one estate agent said: "They are loss-making branches that the former owner is no longer carrying." But he warns: "There may be latent liabilities that could come back and bite Somerfield on the bum if Kwik Save went belly up."
If Somerfield sold off the leasehold and the store properties, but not the freehold, he explains, then the current landlords could go back to Somerfield to recoup losses. That is, unless it has insured itself against that eventuality within the terms of the deal itself.
But the deal may also make sense for Kwik Save purely as a property play, he adds. If they are freehold properties, Kwik Save could keep the stores, lease them out and eventually flog them as investments to generate a large amount of capital.
"The quickest solution would be to do a back-to-back deal to
sell the freehold off directly after acquiring them," he says.
Neither Kwik Save nor Somerfield were prepared to comment on the terms of the deal. However, the latter scenario is unlikely, since the 45 extra stores give the group greater scale to secure more orders from suppliers and to stock its stores.
The board certainly supports this assessment, saying: "With the addition of new stores, we will be in a better position to negotiate with brand owners and get the best deal for our customers."
Business development director Alan Birchall, who has been involved in Kwik Save for years, says the strategy will help maintain its longstanding formula.
"Kwik Save has always been known for the biggest brands at great prices."
But the words of one store manager cast a shadow over Birchall's optimistic outlook: "Kwik Save used to be Big Brands, Low Prices. We were told we would see Christmas stock two weeks ago. - and it hasn't happened yet. We need core branded stock and we need it now."timeline
February Back To The Future buys 171 Kwik Save stores from Somerfield
March New MD Paul Niklas outlines his strategy
April Somerfield begins rebadging the 102 KS stores it kept
May Availability issues emerge due to temporary supply agreements
June Niklas leaves; TDG appointed to handle distribution
July Storecheck Marketing confirms KS availability problems
August Andrew Villars outlines his strategy as new MD
September Follow-up Storecheck survey shows improvement in availability
October Villars leaves; KS buys 45 stores from Somerfield