British shoppers have racked up their spending on alcohol by £25bn over the past 10 years, yet the traditional off licence is having a dry old time. John Porter finds out why It would be nice to think that Peter Dominic and Augustus Barnett are still enjoying a decent drop of claret in whichever branch of the afterlife defunct retail brands end up in. The two grand old men of the high street off licence trade may even raise the occasional glass with Sir Thomas Lipton and Timothy White, or perhaps crack open a decent sherry over a hand of bridge with the Rumbelows. But it's not only Messrs Dominic and Barnett who have disappeared from the scene over the past decade. Ashe & Nephew, Davisons, and a host of other regional chains have bitten the dust too. It must have been small comfort for the trade to read in Mintel's most recent report on the sector that off licences have outperformed such endangered species as craft bakers, fishmongers and greengrocers over the past five years. That's almost as reassuring as having the cabin nearest the bar on the Titanic. Changing demographics and social factors, new specialist competition both on and offline, and more than a million pints of beer a day coming into the UK from France in the trolleys of cross-Channel shoppers and in the back of vans mean the odds are stacked against the format. Nowadays, you can pick up three bottles of decent wine for a tenner at Tesco with the weekly shop, while web sites such as Lastorders.com will deliver a case of Hoegaarden to your door within a few hours of your placing an order, and give you six free glasses into the bargain. Meanwhile, Majestic Wine Warehouse will carry the mixed case of your choice to your car or deliver it to your door, and Parisa will even sell you a cappuccino and a ciabatta while you decide which bottle of Cabernet to take home. Even the local c-store has a decent range if you suddenly fancy a bottle of plonk or a six-pack with your frozen pizza. So who needs the old fashioned offie? In percentage terms, the penetration of off licences in supermarkets grew the most during the 1990s, with all supermarkets now having an off licence department. In sheer number terms, growth has been greatest among the independent and convenience stores. Mintel records 3,953 new licences issued in this sector between 1992 and 1998. Mintel's research shows the supermarkets' share of the off-sales market growing at the expense of both specialist off licences and the independent grocers. In 1995, supermarkets had a 54.3% share of the off sales market, compared with 28.9% for the specialist off licences and 16.8% for independent grocers and other licensed outlets. By 1998, the specialists, which include both conventional off licences and other formats such as wine warehouses, had seen their share drop to 27.2%, while the independents and others had declined to 11.9%. Supermarkets now take a 60.9% share and it predicts that they will take about 72% by 2003. While supermarket shoppers continue to pile up their trolleys with booze, the specialists and independents are being left with that morning-after feeling. British shoppers are buying more booze ­ wine is a regular feature on meal tables now ­ but not in places where they used to. Since 1990, spend on alcoholic drinks has jumped from £128bn to £153bn, while sales through off licences fell by 20%, from £3.5bn to £2.8bn. The demographics also appear to be against the format. More women are drinking regularly, and according to the Office of National Statistics, 86% of women over the age of 16 drink alcohol; 47% of them at least once a week and 13% at least five times a week. And for most, supermarkets and convenience stores are far more female-friendly than the traditionally male preserve of the off licence. If women pick up wine and beer as part of the weekly shop, men no longer need to visit the corner off licence, which means the format loses out on one of the fastest growing sectors of the market. Meanwhile, Parisa is creating café bars with an integral wine-led off sales business, which it believes are more viable on high streets than stand alone off licences ­ perhaps another draw for the wine-savvy female. The population is also ageing, and Mintel's research shows that the most loyal users of specialist off licences are men in the pre-family stage, whose leisure time is filled by relatively spontaneous activities and where limited budgets mean that bulk shopping is not an option. While a well-stocked off licence with video rental and takeaway food nearby, if not on the premises, can offer the complete Friday evening experience for a group of friends, the high spending older customers will consider the likes of Sainsbury or Majestic a more attractive option. One City analyst who follows the drinks sector says: "When you look at the dominoes stacked up against the traditional off licence format, it's fairly daunting. Supermarkets now have about two thirds of the off sales market. We're now so used to seeing wine on the shelves next to the groceries, it's easy to forget how recent an innovation that is. Even 10 years ago, most supermarkets relegated booze to a small kiosk near the entrance along with the cigarettes. Taking alcohol into the mainstream of the supermarket offer has been a real body blow to off licences." But it seems there is still some interest in the sector. After all, Japanese financier Nomura, which has already established a presence in the pub market by setting up the tenanted Unique Pub Company estate, punted £225m for First Quench earlier this year. Surely it must see some future in the sector? At the time of the purchase, Guy Hands, managing director of the Principal Finance group of Nomura, said: "The acquisition of First Quench is a good deal for all concerned. Based on our track record with similar consumer-facing businesses, we believe that First Quench's full potential can be realised by empowering the management and investing in staff and technology." However, our City analyst questions this rationale. "On the face of it, there are obvious comparisons between buying First Quench from Whitbread and the parcels of tenanted pubs which Nomura has picked up. Both are mixtures of large, well-run outlets, underperforming sites in secondary locations which need investment, and some no-hopers which will have to be disposed of. "The big difference is in the employees. Nomura has taken on a high percentage of entrepreneurial staff in the pub estates it has bought. These tend to be the top tier of pub tenants, those with the commitment and drive to grow their business. They just need a gentle steer in the right direction. However, you can't take the same hands-off approach with retail staff. I'm sure Nomura has got its sums right on the property side, but it may have underestimated the amount of ongoing investment that will be needed in its employees." This view is echoed by Stephen de Mellow, marketing director of the 93-strong Majestic Wine Warehouse chain, which has just seen a 10% increase in wine sales. "I know from experience in other retail sectors, that when you're motivating staff in multiples the size of First Quench, it is a very difficult task." Having joined Majestic two years ago, de Mellow believes the chain's multiple-award winning approach to customer service is what ultimately makes the difference to the high spending, 35-plus age group customers that Majestic targets. "The key thing that drives the business is our level of customer service. Our managers can recommend particular wines at particular prices to match the customer's needs. The level of knowledge is well above what you'd find in a supermarket, and I have to say what you'd find in a traditional off licence. "Ninety per cent of our staff are graduates, and within six months will have the Wine and Spirit Trust higher certificate. Having sat it myself, I'm confident that our staff have a higher level of product knowledge than those in just about any other retail sector." He believes the appeal to a younger demographic offers a solution for some sites: "I think that off licences will have to consolidate into much more targeted outlets for their particular trading locations. You're up against the fact that 65% of the UK wine market is in the hands of major supermarkets, and that's tough. I don't see that the off licences will find it any easier, but if they focus on their particular audience and offer what it wants in terms of price, promotion and service, there is a place for the traditional off licence." Pitching the offer on price, however, can also be a risky strategy. According to Mintel, too many specialist off licences equate competing on price with stocking a huge range of economy brands. The hard learned category management lesson from the supermarkets ­ to stock just one value brand in each category and to price promote top brands ­ has simply not been picked up. It may be some consolation that pricing, as well as students' little-and-often budgets, can also be a problem for the competition. Chris Miller, trading director of lastorders.com, says Lastorders does not compete in the six bottles of Stella for a fiver market, and won't be drawn into the battle on other fronts. "If Asda and Sainsbury want to fight it out with Carling or Tennents at £13 a box, we can't compete ­ and we won't. We are competing on convenience, premium brands and the level of service." The company has just launched a same-evening delivery service, and is also exploiting a lucrative new niche market. The 3,800 drivers who responded to an invitation to test drive a Honda Civic this summer were rewarded with a bottle of Moët, delivered to their door by lastorders.com and around 50 magnums of champagne a day are being delivered to people making their first online share deal with selftrade.com. Sainsbury recently entered into an online link with Oddbins, offering shoppers more than 3,000 wines via both digital and traditional channels, but the multiple is definitely not interested in buying the brands or the sites, says Allan Cheesman, the supermarket's wine director. He believes the specialists "lost the plot" and allowed supermarkets to drive the off sales market for too long. "The reasons supermarkets do so well are the obvious ones. It's about the one-stop shop, range and convenience. We've worked hard to grow wine sales." Cheesman cites the loss of the traditional link between off licences and regional brewers as another cause for decline. In the days when part of a community pub could be given over to off sales, brewery distribution networks and economies of scale meant that off licences were viable in areas which could not sustain a standalone retail unit. However, he admits: "If supermarkets have an Achilles' heel, it's in the area of specialist knowledge. There's a need for more training, and it's where the likes of Majestic and Oddbins currently have the advantage." But despite this, Cheesman warns that the Local supermarket format, which Sainsbury is developing, will further hit the traditional format. He adds: "There'll always be room for a good local specialist with the right product range, local reputation, and, most importantly, product knowledge. Whether there's room for 3,000 of them on high streets with double yellow lines is another question." It is in the supermarket chain's southern stronghold that the battle for share of glass has been most graphically played out. London's last brewery link disappeared this year when the 63 Fullers wine shops were sold to regional chain Unwins, a traditional off licence which seems to show that there is still life in the format. With the rebranding process complete, the family-owned firm now has 452 stores across the south-east, and is thought to be the most likely ­ possibly the only ­ bidder for the Oddbins group, which is up for sale as owner Seagram seeks to rationalise its business. Bill Rolfe, Unwins' marketing director, says its southern presence has given it extra clout. "The development of the wine category has really been led in the capital. Supermarkets have taken the lion's share of the take home market for drinks, but they've also expanded the market along the way. The cake's grown and there's been enough for both the supermarkets and the specialists which have survived," he says. According to retail analyst Verdict, Unwins and Oddbins have the highest ABC1 consumer profile among off licences, which seems to make the businesses a perfect match. Rolfe acknowledges that Unwins is looking at opportunities for further expansion, and that beyond Oddbins the options for acquiring existing parcels of outlets are limited. The question in the City is whether the privately owned Unwins can raise the £50m price tag Seagram has put on the business. Rolfe, who himself started in the business as an off licence manager in the 1970s, believes Unwin's home-grown management team is another of its strengths, when compared to the mix-and-match management teams from other business sectors at most of its rivals. "Those teams may have looked right, but there's something about this game. If you're going to run an off licence chain, you need to have worked at the sharp end." But without a monopoly on convenience and specialist knowledge, the future looks precarious for traditional offies.They need to become even more focused, ensuring that each branch meets the needs of their local customers to prevent them from going bottoms up. {{COVER FEATURE }}