Inspired by a bus tour of depots, Charles Wilson’s integration plans are compellingly simple
The market has grown used to Booker’s continuing success under CEO Charles Wilson. And he didn’t disappoint last week, with half-year profits of £50.6m ahead of forecasts, and the share price - already up 30% this year - breaking briefly past the magical 100p mark.
But the Makro picture was every bit as important to the share price movement as the micro one, with Wilson unexpectedly revealing his masterplan to turn the loss-making wholesaler around ahead of the OFT’s ruling, expected in November.
The acquisition from Metro was completed in July, but Makro is continuing to trade separately. That Wilson should come out with such detailed plans ahead of the OFT’s judgement suggests Wilson is confident in the deal’s approval.
Even if it is waived through, integrating Makro certainly won’t be a piece of cake. Wilson predicts Makro’s sales will fall 9.1% this year to £715m, incurring an £18m loss. Makro’s weakest quarter traditionally, the three months to March 2013, is expected to result in a further £10m loss. So how does he plan to turn it round?
As ever, the strength of Wilson’s vision lies in its simplicity: essentially, it involves making the most of Makro’s huge depots - an average of 100,000 sq ft versus 36,000 sq ft at Booker. “Booker’s and Makro’s directors have gone around on a bus together visiting every Makro and Booker in neighbouring places,” says Wilson. This tour identified that with room to spare, Booker ‘delivery areas’ can be introduced into all Makro’s depots. These will take up 20% of space, and deliver products under Booker’s Chef Direct, Ritter-Courivaud, Classic Drinks, Premier, Booker and Makro brands.
Half the depots will introduce ‘trade only’ Booker concessions, too, which will take up 35% of the depot and sell Booker’s catering ranges.
Booker and Makro depots
|Makro location||Distance from nearest Booker (miles)|
The remaining 45% will be dedicated to Makro, with 10% of space set aside for non-food and 35% to food. Currently, some 40% of space in a typical Makro is dedicated to non-food and 60% to food. With such a radical mix switch, average sales per depot will increase from £27m to £70m.
The first depot to be trialled with a Booker concession will be Makro’s depot in Sheffield - chosen because a Booker depot is 400 yards away and its lease has run out. All Booker staff will move to the new depot. “We do a lot of business in Sheffield but could do a lot more,” Wilson says. “This will give us the opportunity to grow there.”
Wilson couldn’t reveal which other sites would get concessions or how many other Booker sites could shut, but admitted he was “pretty excited” about Makro’s Belfast depot because a concession there would take Booker into Northern Ireland.
Concessions and depot closures also mean cost savings. Wilson plans to save £26m through a combination of the £6m of cost savings already actioned by Makro management, as well as up to £4m cost savings in the supply chain, £2m in goods not for resale, £12m in goods improvements, £5m on improved margins in fresh, and £3m in rent/rates savings on branches.
By 2013/2014 Wilson predicts Makro can contribute £10m in extra profits. As Investec analyst Nicola Mallard says: “This will be 2014, when we should be better able to judge how quickly it is turning this business around.”