The best way is bigger

As Bestway breaks the £2bn sales barrier, chief executive Zameer Choudrey is primed to pounce, says Peter Cripps


Sitting in the boardroom at his Park Royal HQ, the nerve centre of the Bestway empire, Zameer Choudrey seems very much a man at ease.

The set of accounts in front of him reveals why. Group sales broke through the £2bn barrier for the first time in the year ending 30 June 2009, with all arms of the business increasing market share.

The wholesale arm's sales are up 5.2% to £1.92bn and pre-tax profits rose 16.8% to £39.9m. The integration of Batleys is also complete and its profitability has risen 35% over the past year.

Not bad for a business started, from scratch, by Choudrey's uncle Sir Anwar Pervez, who famously arrived in the country penniless from Pakistan in 1956. As well as his business nous, Choudrey has clearly inherited his uncle's work ethic. Not content to rest on his laurels, he's now set his sights on acquiring another competitor.

The wholesale business is in a stronger position to do this than the accounts suggest. Although the group has net debt of £185.4m, up 12.6% over the past two years, Choudrey says the UK business now has net funds.

The net debt, he says, belongs to the Pakistani business, which is ringfenced and run entirely separately from the UK business.

"We have virtually no debt whatsoever in the UK," says Choudrey. "All our freeholds and stock have been paid for, including our investment overseas. Whatever we have borrowed in Pakistan, they have no right of recall in the UK. We would only lose to the tune of whatever equity we have put in."

With a rock solid balance sheet Bestway owns the freeholds to all its depots apart from one and an EBITDA of £55m, Choudrey would be happy to borrow up to £220m to fund another acquisition.

"We have such a big asset base that any banker would love to loan to us. They would love to get their hands on our assets. And we are ready for expansion. Whatever debt we've had we've paid off in the past few years, including the debt from buying Batleys."

Choudrey has just one problem there doesn't seem to be anyone out there to buy. "Acquisitions are very much on our agenda," he says.

"We have a successful track record of acquisitions. We have the balance sheet, the cash, the management time. But wholesalers are a very resilient lot. They are owned by families and there are not very many opportunities for acquisitions. We have set our stall out. Maybe this year or next year, if things tighten up a bit, some people will reconsider."

There has been much speculation in recent years that Bestway would buy Makro, the only loss-making wholesaler in The Grocer's Big 30. But Choudrey doesn't think it is up for grabs.

"Makro live in a world of their own. I don't think, from what we see, Metro will sell. They have closed three of their depots last year. I think they have decided to restructure their business. If they were selling why would they go through this pain?"

Choudrey is prepared to be patient but he won't sit on his hands forever. If no acquisition opportunities present themselves, Bestway will diversify, he says, although he doesn't yet know into what.

It would not be the first time Bestway has tried its hand at something new. The company has a rich history of innovation. In the 1980s it started a rice milling business when it spotted an opportunity to import basmati when Pakistan opened itself up to foreign trade.

Its White Pearl rice brand is one of Bestway's bestselling lines through its depots and it has since diversified into 500 spices and foodstuffs. Its ventures into cement and banking in Pakistan were also bolts from the blue.

And Bestway has reaped the rewards from continuing to invest during the downturn. In the past year it has spent £6m doubling the size of its Coventry distribution hub to 250,000 sq ft.

This has allowed Bestway to take control of the distribution to its network of 54 C&Cs, get cheaper prices from suppliers and improve availability. And the growth of the UK wholesale business has been achieved despite Bestway's alcohol sales having fallen 40% over the past two years, which it blames on unfair competition from criminals undercutting its prices with duty-avoided stock.

Choudrey says organic growth in its grocery products is the main driver, helped by strong promotions such as Magic Circle, which it has recently brought back for a second year. Its Best-One fascia is also going from strength to strength, with sales rising 20% every year since its launch seven years ago. Its 750-strong own-label range, Best-in, is showing double-digit growth and is currently set for a big push with its Pound Shocker promotions.

Bestway is also stepping up its foodservice capabilities. Sales to caterers now exceed £100m and Choudrey is diversifying into foodservice to capitalise on what he calls a "boom sector". "The foodservice market may have been hit by the recession but it will continue to grow in the long term, particularly in London."

Petfood is another potential growth driver. So far the company has opened three dedicated Batleys Petfood depots, and Choudrey believes the demand is there for more openings. There could also be further depot openings as Bestway looks to fill some of the holes in its coverage of the UK. All in all it's a patchwork of aspirations that add up to further steady growth.

But when there's a bigger opportunity, he'll be ready.