Kwik Save’s new owners clearly relish a challenge. This week they have outlined to The Grocer their plan for restoring the fortunes of Britain’s first discount chain, a business thought to be losing £40m a year. Can they pull it off?
Certainly, nobody was surprised to see Somerfield’s new owners sell off the troubled chain. What was surprising was that it found a buyer keen to keep trading the business, because most pundits had expected Kwik Save’s stores to be sold off in chunks and the famous red and white logo to disappear from high streets.
There’s no doubting the credentials of the new management team. For starters, there are strong links between John Lovering, who now chairs Somerfield, and Richard Kirk, chief executive of Peacock Group, who spearheaded the Kwik Save deal. Lovering was chairman of Peacock until 2004, before being recruited last year to head Kirk’s management buyout of the discount fashion chain.
In addition, analysts say that Kirk’s knowledge of Somerfield through its concessions deal with Peacock, his earlier experience as MD of Iceland, where he worked for 18 years, and a stint at Woolworths are all bonuses. One says: “If anyone can turn Kwik Save around, Kirk knows what to do.”
And Iceland boss Malcolm Walker has nothing but praise for his protégé: “If anyone can do it, he can.”
MD Paul Niklas, too, has a history of fixing businesses - having led a turnaround at the European division of Formica, for instance. Alan Birchall, business development director, and Steve McArdle, director of stores, have both had stints at Kwik Save.
Nevertheless, Kirk, Niklas and the rest of the team face huge challenges: Kwik Save is too small to source branded products at prices that will allow it to compete with the likes of Asda and Tesco; it will be squeezed by the hard discounters; and its stores need a lot of updating.
On top of all that, the chain faces a bumpy ride as it shifts its HQ to a new base in Huddersfield and sorts out supplier and distribution issues. Expect empty shelves as terms are renegotiated and deliveries are re-routed through its newly acquired North Yorkshire RDC.
With this turmoil ahead, few people give it much of a chance. One major manufacturer thinks it’s just a matter of time before the hard discounters swallow up Kwik Save, cherrypick the best stores, close non-performers and kill off the brand. “With the current positioning of the discounters, you would have to come to market with a very different offering,” he says.
He’s right. What will ‘new Kwik Save’ look like? The chain urgently needs to redefine its position in the already rather crowded discount end of the grocery market. Simplification of ranges will help provide some focus; a commitment to brands will certainly differentiate it from the likes of Aldi and Lidl; and running lots of offers and promotions will drag in the price-savvy shoppers.
Yet analysts remain unconvinced. One says: “Finding the right products that will give you an edge will be extremely difficult.”
Price is another issue. Canny sourcing of product through the grey market could give Kwik Save stuff at the right prices, but it will also create significant headaches when it comes to sourcing the right quantities.
But bashing out deals directly with suppliers will not be easy, say analysts. “Given their size, I can’t imagine they’re going to be able to get the kind of prices the major supermarkets and discounters get,” says one.
Indeed, it’s hard to find anyone who thinks the new team will pull it off. One expert says: “The format’s dead in the water. They should have left well alone. I can’t see them pulling this off in a million years.”
But Niklas is adamant that the team has a plan in place to turn the business around.
He says: “We are in the business to grow and develop it. With the right position and the right message there’s a definite future.”