P&H boss Christopher Adams tells Amy Balchin about his
plans for greater profitability

It is not easy being a wholesaler. Low margins are a fact of life and then there are the pressures of the declining tobacco market, falling phone card sales and the impending Road Transport Directive to contend with.

Palmer & Harvey McLane is no exception, admits chairman Christopher Adams in an exclusive interview. “We typically see profits of under 1% of sales,” he says frankly.

However, tough trading conditions did not stop it emerging triumphant in The Grocer’s Big 30 in January as the UK’s largest independent wholesaler. Now, almost three years to the day since the management buyout, the company is the third-largest private firm in the UK with turnover of £3.5bn.

The company’s success and its strong position have, perhaps unsurprisingly, fuelled recent speculation of a potential takeover by Key Lekkerland.

Adams is tightlipped about the speculation: “On anything to do with ownership issues, P&H has never commented and never will. There is bound to be a frisson of excitement in the industry after the recent Baugur takeover of Booker.”

Instead, Adams is keen to look to the future. And three years after outlining his three-year strategy for P&H to The Grocer, he is satisfied with achievements to date.

Saddled with £136m of debt, the immediate priority after the MBO was to repay the £86m borrowed from former shareholders by increasing net revenues through growing sales. This was achieved in two years. “Our first objective was to reduce our borrowing to a level commensurate with that of a company of our size.”

With debt levels under control, and now reduced to £50m, the second goal was to minimise costs without making fundamental changes, Adams says. “We looked at each area of the business and how operations could become more efficient.”

So housekeeping has improved. But it hasn’t stopped the rate of growth slowing dramatically. While turnover three years ago was up 7.8% to £3.2bn against 3% in the sector as a whole, this year turnover dipped by 0.47% to £3.53bn while the sector continued to grow by 1.9% [IGD].

Adams acknowledges growth is hard to come by and says that after flat growth last year he expects to see a similar picture this year. He blames the decimation of the phone card market, which had a negative impact on sales of more than £100m. But he says that if phone cards are excluded, underlying sales have actually grown by 2.5%.

He even goes so far as to claim: “We have been lucky in the sense of being in delivered wholesale, which has grown more than others - we are in a growth market.”

Volume is all in wholesaling and at the end of last year P&H started to look at how best to generate growth in each area of the company, a process that continues in 2005.

“We want to grow the business more efficiently and effectively and look at what the opportunities are. Our overall objective is to grow each business platform.”

As such, its focus is now on distributing to multiple grocers, manufacturer distribution, added-value wholesale, symbol and retail services and direct van sales.

Moving toward its goal to grow sales, P&H has renewed a contract, which will be finalised later in the year, to provide an extended range of grocery items under manufacturer distribution deals.

Adams puts what growth there has been this year down to the wholesaler’s ability to supply everyone from the multiples to c-store chains, including TM Retail.

“We have an unparalleled infrastructure within the UK for delivery, supplying ambient, chilled and frozen - that does allow us to become a one-stop shop.”

There have also been changes to the company’s supply chain infrastructure. It recently opened its 18th depot, a 150,000 sq ft ambient depot in Dunfermline, tripling the size of the old depot. “Having the ability to supply a much wider range of products in Scotland has proved advantageous,” says Adams. The company is also looking to expand this network, he adds. “Five to seven depots would be ideal.”

The company will also later this year roll out vehicle scheduling system Roadnet, already trialled at the Medway branch. It has been devised to deal with the demands of the impending Road Transport Directive, under which employers will need to keep track of the hours drivers have worked and keep this available for inspection.

P&H today serves 61,000 customers, including 20,000 independents and 10,000 multiples and multiple c-stores, offering 9,000 lines. It also runs four symbol groups - Mace, Mace Express, Your Store and Supershop, under which 720 stores operate.

Since its launch in 2002, Mace Express has boomed, says Adams. There are now nearly 200 members, 60% of which are forecourts, and growth has been continuous since launch. It is now one of the fastest-growing symbol formats, he adds.

“It is fresh and new - always an attraction. It fills a niche in the smaller end of the convenience market.”

Throughout the last decade, the business has been transformed from a tobacco and confectionery wholesaler into the “one-stop shop” Adams describes today, but the business continues to evolve.

“There is never a last piece in the jigsaw - the jigsaw always changes,” he says.