Specialist off-licence chains have a future says Nigel Huddleston
The specialist off-licence sector started 2002 with £2.2m losses and head office redundancies at Unwins and ended the year with receivers being brought in at Cellar 5, leaving question marks over the long-term future for high street drinks retailing.
The collapse of Cellar 5, with its Booze Buster fascia, has left fingers pointing at supermarkets' cut-throat drinks prices, although a longer-term appraisal might point to over-investment in expensive retail brand concepts in the 1990s and high ongoing costs. Stock holding was cut to levels that left many stores unattractive places to shop.
Matthew Hughes, sales and marketing manager at Bargain Booze, which operates on the same home turf but with an almost exclusively franchise operation, says: "Cellar 5's problems have been more to do with its fundamental business model. We don't have enormous amounts of money tied up in property. We have one distribution centre and own one store, and that's it. We're more fleet of foot in the way we operate."
Bargain Booze's low cost base means it can invest in low margins on key lines, PoS and above-the-line support.
Such tactics are important in the light of aggressive and growing supermarket domination of drinks. Tackling supermarket supremacy was one of the key drivers behind the merger of Victoria Wine and Thresher to form First Quench in 1998, but the task of integration was arguably too great for there to be enough focus on that primary goal. It was only after the merged company was sold to Nomura in late 2000 that some of the fundamental issues around buying power, retail branding and location duplication began to be addressed.
Like Cellar 5, First Quench and its forerunners had spent the 1990s seeking strength through diversification, including the Martha's Vineyard and Booze Barn retail park operations, which tried, and failed, to take on the supermarkets in their own back yards. In the past 18 months, new chief executive David Williams has set about tackling costs, improving relationships with top suppliers through its Category First initiative and rationalising fascias, with the focus on Thresher in England and a price-led Haddows in Scotland.
He's also bought in top knowhow in key positions, including former Asda/Wal-Mart Europe wine buyer Russell Burgess and ex-Curry's MD John Risman as head of the commercial business unit.
Williams also talks about giving employees a "sense of belief", which shouldn't be under-estimated in a sector dogged by poor staff morale.
He argues the off-licence sector does have a future and needn't go for the lowest common denominator of cut-throat prices to achieve it. He describes some of this Christmas activity by the multiple grocers as "disgraceful" but adds: "You don't have to drop your pants just because the supermarkets drop theirs.
"The market is fundamentally changing. What we did in the past is not the way to grow and prosper. Where we have changed the look of our shops in East Anglia, we are seeing staggering results. It proves off-licences with the right range and the right environment can continue to prosper.
"We're working towards being a simplified brand business and Thresher is where it's going to be for us. Some 40% of our wines are exclusive to us. That way we are beginning to differentiate ourselves."
Rival Unwins has declared its intention to move towards a c-store type offering in half of its outlets as part of its own repositioning, but Williams suggests that convenience is about more than what products are on sale.
"We are essentially a convenience retailer because the first reason many of our customers use is because of where we are."
First Quench is looking good. A £29m loss in 2000 turned into a £33m profit in 2001.
And Key Note says the off-trade is in the middle of a four-year period of growth in the region of 17%, so the specialists should have plenty of opportunity for prosperity. "I remain very confident about the future of the off-licence business," says Williams, "but it will be very different to the one anyone who worked in the sector two or three years ago would recognise."