It drifted away from the original concept' and dark times followed. Now, just how big a task do Alldays' new bosses face? Analysis by Julian Hunt Wb hen David Clapham walked into Alldays' hq in Eastleigh for the first time last November, he saw the company's mission statement nailed to the wall of his office. As its new retail md, Clapham was impressed by what he read: "We aim to be the customer's first choice for convenience and top up shopping within each store's trading area." But Clapham says he quickly realised Alldays had completely lost sight of that mission statement. Quite simply, he claims, many of its stores were not serving the neighbourhoods in which they were located. "The Alldays brand was built on very sound research. I talked with the people who built the brand to very carefully deliver what the customer wanted. But they have not followed the brand values and it has drifted away from the original concept." For proof of that, just look at the company's logo. It's a nifty looking basket crammed full of everyday essentials such as a paper, bread, milk, wine, apples, a leek and, er, a cauliflower. The question is: does every Alldays store deliver on that simple promise to the consumer every time? And while they are conveniently located, do the stores offer the right range, at acceptable prices, in a tidy environment with full shelves and acceptable service levels? Clearly many of them do not. That's because the company has in the past placed too much emphasis on growing store numbers and too little on getting it right operationally. The use of a franchisee network to build the estate was clever in theory, but some Regional Development Companies proved a disaster. Some have been a huge success, while others implemented retail strategy in their own way rather than toeing the company line. Former chief executive David Glass believed that sorting out that mess would be simple enough: put the brakes on new store openings, rationalise the RDC network and "concentrate on core retailing strengths". Following the release of a poor set of full year results in January 1999 ­ when pretax profit fell 36% to £13.6m ­ Glass headhunted Amin Kassam from Dixons as sales director and Tim Chalk from Tesco as trading director to help him exploit the opportunities he said existed for Alldays in the c-store sector. But their reign was shortlived. By last November, Glass and Kassam had been ousted and Clapham was brought in, reporting to new full-time chairman George Duncan, who replaced James Watson on his retirement. Last month Chalk was replaced by former Sainsbury exec Andrew Mitcham. It's clear Alldays' new directors have grasped what needs to be done. They talked at great length this week about how they would try to leverage the brand, get costs under control and trade the business well to let the profit flow. And Clapham outlined how he was sorting out retail basics such as ranging: "There's an opportunity to get a better leverage on our space by tightening down on the CTN elements and using it more on the right sort of food. But it does depend on taking a careful look at individual locations. Is it one with a lot of passing traffic requiring a grab and go type of offer, or is it a neighbourhood centre?" His biggest challenge, of course, is having to do all this segmenting and refocusing without spending huge sums of cash. But a quick tour of one former RDC store that has been newly refitted to meet this vision confirms that sensible changes can be made to ­ as Clapham puts it ­ improve the operation in leaps and bounds. His team face another tricky operational issue: with the buyback of RDCs virtually complete, Alldays now owns and operates 657 stores out of a total of 802. When Clapham joined the company a couple of months ago, it owned 356; a year before it owned just 291 stores. But Alldays insists this rapid network consolidation is vital as it will lead to better store profitability and lower central costs (which last year soared to a whopping £17.5m, while warehouse and transport costs also rose). These costs will come under control because the simpler store ownership structure and the closure of the company's Dundee offices will allow more "streamlined business processes" to kick in, say Alldays' bosses. The need to strip out unnecessary costs will be given even greater urgency by the fact Alldays is already piling up debt largely as a result of its RDC buyback programme and will soon start incurring a hefty interest burden. The other priority is making sure profits start to flow. Because what is really startling about last year is not the £84.7m exceptional reorganisation costs ­ which mostly relate to the RDC buyback ­ but that Alldays made an operating loss of £2.1m on turnover up 20% to £439m. In company owned stores, operating profit fell from £9.3m to £6m, with margins down from 6% to 3.8%. This is blamed on a number of factors. The drive for extra sales ­ while successful, with like for likes ahead 7.9% ­ put pressure on operating standards and controls. There was lower "one off buying income from suppliers", adverse changes in sales mix and higher operating costs. The beauty of the Alldays model, stresses finance director Stuart Lawson, is it's designed to work at low numbers. While the average store is doing £16,000 a week, he says if the company is a "low cost processor at the centre" it can make a profit out of those doing £10,000 a week. Lawson also points out that while the RDC stores being brought into the Alldays estate are modern and have common branding and systems, they are "immature" in trading terms. As these stores get better known in an area, and the offer is refined, Lawson argues this should provide an opportunity to boost sales and margins. And the use of a single regional structure should keep a lid on costs while allowing better economies of scale to be achieved. That's the theory. It's up to Alldays' new management to make it happen. As Lawson points out, all the things affecting the performance of Alldays are within its control to sort out ­ whether it be ranging discrepencies or the fact that sales per full time equivalent employee are 40% higher at the top end of its estate than at the bottom. But while the Alldays directors are open about their plans for driving the business forward, they are less forthcoming about possible store closures or sales. Chairman George Duncan said: "There's a lot of work to be done on the review of the profile of the stores and we need to make up our minds whether there are different formulae that work in different stores. When that's done, it may well be there are stores that will not be profitable. This is some way down the road. But the suspicion is that it will be fewer rather than larger. The criticism is that we must have lots of duff ones. But we feel that's not so." Some observers disagree with that upbeat view. One said: "Some of the sites will never make them money. They were just bad, bad sites. I have one near me that will never make a profit unless every other store in town closes." Clive Vaughan of Retail Intelligence agrees: "I suspect there will be some branches that need to be taken out. They grew so fast and it was not controlled initially by Alldays. The RDCs may have been gung-ho because they knew Alldays would rescue them if they got into trouble." That may sound harsh. But independents can point to countless cases where RDCs paid way over the odds for stores. Yet despite the fact RDCs could, and often did, pay silly money ­ their investment effectively being underwritten by Alldays ­ very few actually opened enough outlets to support their overheads. That ­ and poor operational standards ­ prompted Alldays to decide in January 1999 to start buying back its less successful RDCs. The buyback programme was subsequently extended to include all the franchise operators, a £200m refinancing package secured and all but six of them have now sold up. So was the RDC concept a failure? Well, given that the main purpose of this business model was to grow Alldays as rapidly as possible, it was successful. And the company does have a strong national portfolio. Duncan again: "It would be so easy to criticise [the RDC strategy]. But it has left a legacy of 800 shops built up over five years that we would probably have found some difficulty in building up by any other means." Consider that some observers believe the better stores out of the 657 now owned by Alldays have an enterprise value of £300,000 each, and it puts the debt situation into some perspective. It also suggests the business is worth far more than its £20.4m market capitalisation. But a lack of any City enthusiasm for the company is one of the main legacies of the past couple of years ­ as is a share price languishing at 46p, compared with a high of more than £6. Alldays' new managers are drawing a line in the sand following the poor results and disastrous balance sheet released this week. They say the disposal of non core activities has been completed with the sale of Trademarket to Booker in December. A £200m banking facility has been secured and will fund the repositioning of the group. And the RDC buyback programme is virtually complete. Duncan says: "God willing we are now moving into a period where we can concentrate with the management team on improving the operational aspects of the business." Nobody at Alldays is pretending that turning round the business will be quick or easy. But they say the convenience sector has a bright future, and so will Alldays, if the management does things "thoroughly and properly". Vaughan agrees: "Alldays needs to pause for breath. At a trading level the concept is good. But it is a sector that is going to get tougher as the majors dive into it." n {{COVER FEATURE }}