You know it’s grim in grocery when a 6.3% like-for-like sales slump sends supermarket share prices soaring.
That was the City’s reaction to Morrisons’ latest quarterly results, posted last week, amid expectations that figures could have been much worse. And if an 8.5% increase in the Morrisons share price looks perverse under the circumstances, it’s not much better at M&S, where a 0.7% decline in like-for-like sales, and an overall 2.3% increase in pre-tax profits to £268m resulted in a 14.5% hike in the share price. As one ex-M&S food boss said, “In my day, we used to make half a billion. Now they’re euphoric over half that amount.”
Prices have tanked throughout the year for the listed supermarkets – with Kantar’s latest four-week market share figures showing Sainsbury’s is actually performing worse than even Tesco in terms of grocery and food and drink sales [Kantar Worldpanel, 13 October 2014].
And suppliers such as Premier Foods have also been sucked into the tornado as the consumer has shopped elsewhere (discounters Aldi and Lidl, obviously, but also online, in the convenience stores of the supermarkets, and at M&S and to a lesser extent Waitrose.)
But enough with the doom and gloom; it isn’t the whole story. In a series of articles for The Grocer’s new finance channel, we will be detailing the retailers and suppliers who have given the market – and investors – reasons to be cheerful in 2014 – and how they have managed it, kicking off with…
Crawshaw Group
Aldi and Lidl aren’t the only value operators who are challenging the big four.
Crawshaw Group is a little-known AIM-listed butchers with 21 outlets in Yorkshire, Nottinghamshire, Humberside and Lincolnshire. And it’s THE stealth success story of 2014, with its share price soaring by more than 520% over the past 12 months. In fact, the business picked up the prize for best-performing share at the AIM Awards in October.
Sales climbed from £18.8m to £21m in the year to 31 January 2014, with like-for-like sales up 11%. EBITDA for the period doubled to £1.4m and pre-tax profit rose by £700,000 to £1m. Growth has continued in the first half with turnover up £2m to £11.8m in the six months to the end of July.
Crawshaw’s secret? It offers a host of pre-packed meat mix-and-match deals and value ranges alongside a traditional in-house butchery service, with promises of being up to 40% cheaper than the supermarkets. It also serves up hot and cold food to go from roast chickens and pork joints to sandwiches, curries and casseroles.
As well as the obvious price advantage the group offers over the multiples, the group was in the “right space at the right time” when the Horsegate scandal erupted, according to one analyst. The scandal shook consumer confidence and caused a rethink of who could be trusted to put meat on the table.
But Crawshaw finance director Lynda Sherratt believes customers had grown disillusioned with the big supermarkets far earlier.
“The recession meant our customers needed to find ways of making their money go further,” she says. “They started looking elsewhere other than supermarkets to find cheaper ways of doing their weekly shop.”
That’s not to say the scandal didn’t help. “Since customers could see butchers within the shop cutting and packing the meat it gave them reassurance,” she adds. But there’s a lot more to Crawshaw’s success than that.
“The supermarkets have not got that customer service a smaller value operator can achieve and the loyalty element proves we have managed to get quality right and the price right,” Sherratt says. “Relationships built with the butchers kept customers coming back week-in, week-out and day after day.
Strong sales have boosted margins and cash flows and given the business greater confidence. As a result Crawshaw aims to become a national brand, with plans to roll out 200 shops over the next few years – with £8.8m raised from two placings in July to support the move and a new processing and distribution hub set to be operational in Rotherham to service 60 locations.
It is backed by the likes of Isis Equity Partners, Unicorn and Schroders.
Thanks to the momentum Crawshaw has gained, the status of the shares has moved from that of a micro stock of about 2p a share in early 2012 to a bona fide stock within AIM, with a valuation as high as 70p in June – it is currently sitting in the 50p range.
With hints of an economic recovery in the air, Crawshaw’s average transaction values are also higher than they have ever been – up 13% on 2012/13 – though this may equally be due to strong retailing skills.
“We have actually found customers have stayed with us,” says Sherratt. “It was customers who came looking when they were disappointed with the supermarkets and they’ve decided that it’s actually not worth going back. Our prices are lower than the supermarkets but our quality is as good if not better.”
ShoreCap analyst Clive Black is certainly a fan: “Crawshaw has delivered a number of pleasant surprises to the market. It has sustained very strong sales growth, which has led to upgrades for sales expectations. That sales growth has boosted margins through operational gearing and has led to profit upgrades. And profit upgrades are the stuff of delight for investors.
“They are a value-based retailer and their heartland is tough, northern towns, so they are in the right spot culturally and from a price perspective for that. It is fresh meat, they’re on the high street and accessible, they’re not a big supermarket and they are also quite innovative.
“It is a great success story and the ball is now in their court to deliver on the potential they have unleashed.”
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