bargain booze store

The City was caught by surprise when Conviviality Retail suspended its shares in July after details of its potential reverse takeover into Matthew Clark, the UK’s biggest independent drinks wholesaler were leaked to The Grocer.

CEO Diana Hunter acted swiftly (taking just four-and-a-half weeks to seal the ambitious deal) to outmanoeuvre global drinks players who many thought would be more natural homes.

But given the consumer-facing nature of the group behind the Bargain Booze chain, what did Hunter see in the significantly larger target (see table) which specialises in supplying wine to pubs and restaurants?

“It is a big move by Diana, but one that makes a lot of sense,” says Akeel Sachak, global head of consumer at Rothschild, who led the team advising sellers Accolade Wines and Punch Taverns. “She is effectively trying to replicate a beverage counterpart to Booker in food.”

The £200m deal certainly brings something new to the drinks industry with the on- and off-trade coming together under one umbrella. “It enables us to meet every single consumer drinking occasion, either in the home or in pubs, clubs, bars, restaurants, hotels or festivals,” says Hunter. “It is a unique model and I don’t know anyone else who could have pulled that together.”

To reflect the new nature of the enlarged group, Conviviality plans to drop the ‘Retail’ from its name but questions remain over its ability to succeed in a new channel.

“It is clearly transformational, but the real challenge is how the management of a smaller retailer, at the coal face of selling to its consumer, gets to grips with a larger, delivered wholesaler,” says Simon Peacock, director at Catalyst Corporate Finance. “Having bought businesses in new channels before [Conviviality acquired Wine Rack in 2013] I can see how the macro-economic opportunity is strong but the post-deal execution needs to match it to be a success.”

However, Conviviality has always been a wholesaler in retailer’s clothing. Its 624-strong store estate is owned by franchisees rather than the company, with products being distributed from a central hub. “Our expertise is wholesale but we have to stand in the shoes of our franchisees and understand the retail market,” Hunter says. “We have a foot in both camps so it was a very natural fit to extend our reach into further wholesaling with different types of customers, which is why we approached Matthew Clark.”

“Matthew Clark is a traditional wholesaler but both businesses are doing fundamentally the same thing,” Liberum analyst Wayne Brown adds. “What you are doing is combining two very effective, yet different, business models together to gain significantly greater scale.”

A new era

The new group has combined revenues of £1.1bn, with the lion’s share coming from Matthew Clark, which delivered more than 48 million bottles of wine, 22 million bottles of spirits, 171 million pints of beer and 16 million bottles of cider to about 17,000 premises last year.

That scale of Matthew Clark gives the new Conviviality huge purchasing power and the ability to offer suppliers access to a variety of different channels with the efficiencies of supplying a larger group. Being a specialist wholesaler, Matthew Clark also gives access to small producers and exclusive labels, as well as the experience to develop ranges.

“This gives Bargain Booze a bigger, broader range of product by which it gives them some pricing power and margin so it should benefit the franchisees,” Brown adds.

As well as being more competitive on pricing against discounters and supermarket rivals, John Cummins, co-head of equities at WH Ireland, believes Conviviality can utilise Matthew Clark’s exclusive ranges to drive footfall.

This works both ways, with Matthew Clark able to extract better deals from wineries now it has retail stores to sell through. And it will also benefit from revenue synergies with opportunities to sell off end-of-line and delisted batches in Matthew Clark warehouses through the Bargain Booze estate.

At the same time, Conviviality will be able to use Matthew Clark’s 14 RDCs around the country to serve its stores, especially outposts in the likes of Newquay, more efficiently. That infrastructure will make expansion of the Bargain Booze store network, mostly focused in the North, much easier. “It won’t be overnight as they need to integrate, but the backbone to roll out considerably more stores is there, while being able to offer the same value,” Cummins says.

Along with other organisational savings, Cummins conservatively estimates that by 2017, based on a forecast of £1.3bn revenues, the enlarged group could cut costs by £4m a year, but adds there is potential for a much higher figure.

The deal is not yet over the line, with approval still needed from shareholders at Conviviality and Punch Taverns and the matter of £130m to be raised from a 150p per share placing. But the main risk involved for Conviviality and Hunter is that around execution. Brown notes that the qualitative issues of merging two entities are always more difficult. “Culture, different operating structures and different operating styles are the difficult ones and that all falls under execution risk,” he adds.

Cummins believes the Conviviality board is more than equipped to cope with the execution risk.

Chairman David Adams previously served as FD and deputy CEO at House of Fraser and new non-executive director Ian Jones brings nine years’ experience at Homebase as retail director and distribution and supply chain director.

“The execution challenges are there but the board is stronger than a £100m market cap company,” he says. “They have plenty of experience of running businesses where distribution has been of a much larger scale than Conviviality currently has had to deal with.”

Hunter is also in confident mood for the job ahead as the new group focuses on the crucial Christmas trading period.

“The businesses will retain their uniqueness while leveraging best of both,” she adds. “Both are strong businesses with strong growth plans which we want to deliver.”



£364.1m y/e 26 April 2015



Pre-tax profits


Market cap / value

£103.8m pre-deal 9 July 2015

Matthew Clark


£811.2m y/e 28 February 2015



Pre-tax profits


Market cap / value

£200m enterprise value at deal