With the VAT hike on the horizon and the supermarkets using cut-price deals to snap up a growing share of off-trade booze sales, Graham Holter wonders if the writing is on the wall for indie booze sellers
The omens are less than encouraging.
First Unwins went belly-up. Then last year Thresher owner First Quench Retailing went the same way, shuttering 1,400 stores. Supermarkets and c-store chains rushed in to fill the void left by FQR, ramping up their alcohol ranges. Spar even appointed its own Master of Wine and the chain's boss, Jerry Marwood, declared the traditional offie was "doomed".
Yet the number of offies under independent ownership is on the up, a trend accelerated in the past year as the FQR estate came up for sale. And although the indies' share of the off-trade beer market slipped from 7% in 2009 to 6% this year [52w/e 6 November, Nielsen], their split of spirits and wine, at 4% and 3% respectively, held steady under continued pressure as the competition increased. So, six months after Marwood declared the off-licence dead in the water, what hope is there for independent players in the sector?
There's been no exaggeration of the challenges they face, says David Stoddart, retail analyst at FinnCap. "If there were any major off-licences left we wouldn't be advising people to invest in them," he says. "The traditional off-licence is a fairly expensive business to operate at unit level. Tesco Express and Sainsbury's Local are pitching themselves very close to existing off-licences. They have lower operating costs per square foot and they can cross-subsidise wine with other categories."
Most agree the middle ground in alcohol retailing off-licences with offerings similar to the supermarkets whose bread and butter was selling bottles of plonk to time-strapped punters was in decline for a number of years. The death of FQR represented the format's final throes. For the FQR stores fewer than 400 that have re-emerged as off-licences in the year since its collapse, survival has rested on differentiation from the multiples or evolution into something completely different.
"The market has become polarised into destination outlets with clearly differentiated trading styles, be they premium or value," says Matthew Hughes, joint MD of franchise offie chain Bargain Booze. Today, half of Hughes' 632-store estate has a convenience element and 100 are trading under the Select Convenience format, launched in 2007 to cater for shoppers looking for more than just a drink on the way home.
Convenience has been key for the majority of independent buyers into the former FQR estate, says Tony Evans, head of retail at Christie + Co, which handled disposals on behalf of administrator KPMG. "The majority of sales were concluded to independent operators who sought to extend the product range to include convenience," he says. "By doing so and by adopting a flexible approach, this is likely to generate a higher footfall from local clientele."
The other option is to go posh. There are now thought to be some 600 independent stores with a specialism in wine. As their counterparts generalise by widening their offerings into convenience and distress purchases, they have taken the decision to specialise by offering products that are simply not available in the multiples (which now account for 83% of off-trade wine sales 52w/e 6 November Nielsen) while ensuring well-trained staff are on hand to advise shoppers.
Patrick McGrath, MD of wine merchant Hatch Mansfield Agencies, says there has been nothing short of a "rebirth" in specialist wine retailers since the collapse of FQR. Graham Wharmby, independent sales manager at Boutinot, reports increasing interest from new entrants, many former FQR store managers. "Initially there were fewer than we'd hoped but they are suddenly starting to come out of the woodwork now," he says.
The interest is driven by increasingly adventurous consumers. "The interest in wine is getting bigger and bigger, and people really do like looking for something different," says Kai Horstman, who opened Tivoli Wines in a former Wine Rack in Cheltenham in July. "Shopping for wine in supermarkets is not very enjoyable and that's why indies are doing quite well. People like spending time chatting about wine."
The independents that picked the juiciest morsels from FQR's remains are now reporting growing sales. Laki Christoforou, director of Venus Wines and Spirits, the independent chain that now operates 22 stores under the Wine Rack fascia across London and the south east, believes Wine Rack was the jewel in the FQR crown. "Wine Rack was profitable it was part of a much bigger business that was losing money, so it got dragged down," he says.
Christoforou says that by June this year, like-for-like sales across his stores were up to 40% up. "This is because we have continued offering decent wine on the high street with good, knowledgeable staff," he adds. "This gives us a point of difference to most other corner shops and supermarkets. We're now the Majestic of the high street a specialist."
Wine from small to medium-sized producers is another recurring feature in the specialists. "A lot of the wine suppliers I deal with get their stock from small producers," says Trina Osbourne, who runs Trina's Wines in a former Wine Rack store in south-west London. "We do tastings every weekend and most evenings. We've got a tasting table as well, which we use when we were Wine Rack it was mainly used for display."
The specialists have also ditched many of the pricing mechanisms FQR used in its bid to compete with the multiples. Price is, of course, still important but offering quality and knowledge is more so. "Three-for-twos went straight away," says Christoforou. "They were selling Moët for £50 a bottle on three-for-two when it should have been going for £28-£30. We stopped that. Customers can see through that."
Cask ales and ciders are also proving a hit with a growing number of independents, including the Jug & Bottle in Bubwith in the East Riding of Yorkshire. Owner Louise Smith, who established the business in 2002, says the store sells 110 pints a week and also offers 16 draught ciders. "You need diversity to attract different groups of people," she says. "But if it wasn't for the wine I don't think we would remain open."
Ingenuity and an eye for location have helped many survive and some thrive. The prime stores in the FQR estate were snapped up quickly and are paying dividends to those operating them now.
Chas Majeed, executive at M&O Trading which runs 38 stores under the Hartleys and Offie fascias in the Brighton area says sales at the 19 Threshers he's bought have risen by up to 30% thanks to the removal of the automated ordering system, which he says routinely misallocated stock.
However there's no escaping the fact that 1,000 stores in the former FQR estate primarily smaller properties on residential parades and street corners have now been returned to their landlords. Following the scrapping of business rate relief for empty commercial properties in 2008, landlords are losing cash on vacant units. "They have been hit hard," says Geoff Harrington, a solicitor from law firm Thomas Eggar. "Many are seeking to convert their properties back into residential use."
Those that are making a go of it have really had to raise their game. "The good guys have fairly clearly defined what they're doing and they're not competing with supermarkets," says Wharmby. "They're staking their claim on a different position in the market and doing it very well. They're increasingly professional."
With VAT hitting 20% next month, they'll need to be.
Plenty to toast
With growing numbers of indies setting up as specialist wine retailers, the sector looks set to be the scene of one hell of a showdown. But Majestic Wine, the undisputed king of the specialists, isn't worried, says COO Steve Lewis.
"There's room for all of us," he says. "It means we have to make sure we're right at the top of our game."
They're certainly doing something right. Last month Majestic reported a hike in first-half profits of 20% to £7.3m, with like-for-like sales up 7%, bringing revenues to £117.6m. Central to this success, says the company, is investment in its staff, all of whom must sit the WSET Advanced Certificate after about six months on the job.
Around 145 either hold or are studying for their Diploma, which requires two years of study and is one notch below Master of Wine standard. Staff are "absolutely critical" to Majestic's proposition, says retail analyst David Stoddart of FinnCap. Operating from warehouses offers an economical means of doing business, he adds, while a focus on quality gives a strong point of difference from mainstream retailers.
"It ticks so many boxes at once," adds Stoddart. "It doesn't hurt that a reasonable chunk of the market is in the hands of off-licences offering none of the things Majestic does. The format is powerful because it provides a wide range of quality wines at very keen prices. It's more of an American approach ."
The formula has barely changed in the past decade. The focus on fine wine has increased (all 161 stores will eventually have areas devoted to wines over £20) and minimum purchase has been cut from 12 to six bottles. But Majestic's simplicity continues to appeal to consumers and investors alike.
Dispense this
Supermarkets do wine. But advice doesn't go much further than tasting notes featuring a handful of interchangeable and unenlightening adjectives (velvety, smooth and so on). Requests for more advice are usually met with a shrug. Requests to try before you buy are met with incredulity.
So the indies are looking to cement their USPs namely unusual wines sold by staff who actually know what they're talking about by offering samples. But opening a succession of bottles can be expensive and wasteful, so growing numbers are buying or leasing dispensing units to allow customers to sample small quantities without exposing the entire bottle to oxygen, which would ruin it within days.
The innovation offers merchants the chance to encourage shoppers to trade up and provides some with an entirely new business concept. The Sampler, a London independent with two shops, charges shoppers between 28p and £70 to try any of the 80 wines it has open for sampling.
"A lot of grape varieties and wines are a little foreign to some people," explains Kai Horstmann, owner of Tivoli Wines in Cheltenham, which uses an eight-bottle dispenser. "If they're over £10 people might be a bit reluctant. People tend to buy what they try. It's proved very helpful for upselling. It's worth its weight in gold."
The omens are less than encouraging.
First Unwins went belly-up. Then last year Thresher owner First Quench Retailing went the same way, shuttering 1,400 stores. Supermarkets and c-store chains rushed in to fill the void left by FQR, ramping up their alcohol ranges. Spar even appointed its own Master of Wine and the chain's boss, Jerry Marwood, declared the traditional offie was "doomed".
Yet the number of offies under independent ownership is on the up, a trend accelerated in the past year as the FQR estate came up for sale. And although the indies' share of the off-trade beer market slipped from 7% in 2009 to 6% this year [52w/e 6 November, Nielsen], their split of spirits and wine, at 4% and 3% respectively, held steady under continued pressure as the competition increased. So, six months after Marwood declared the off-licence dead in the water, what hope is there for independent players in the sector?
There's been no exaggeration of the challenges they face, says David Stoddart, retail analyst at FinnCap. "If there were any major off-licences left we wouldn't be advising people to invest in them," he says. "The traditional off-licence is a fairly expensive business to operate at unit level. Tesco Express and Sainsbury's Local are pitching themselves very close to existing off-licences. They have lower operating costs per square foot and they can cross-subsidise wine with other categories."
Most agree the middle ground in alcohol retailing off-licences with offerings similar to the supermarkets whose bread and butter was selling bottles of plonk to time-strapped punters was in decline for a number of years. The death of FQR represented the format's final throes. For the FQR stores fewer than 400 that have re-emerged as off-licences in the year since its collapse, survival has rested on differentiation from the multiples or evolution into something completely different.
"The market has become polarised into destination outlets with clearly differentiated trading styles, be they premium or value," says Matthew Hughes, joint MD of franchise offie chain Bargain Booze. Today, half of Hughes' 632-store estate has a convenience element and 100 are trading under the Select Convenience format, launched in 2007 to cater for shoppers looking for more than just a drink on the way home.
Convenience has been key for the majority of independent buyers into the former FQR estate, says Tony Evans, head of retail at Christie + Co, which handled disposals on behalf of administrator KPMG. "The majority of sales were concluded to independent operators who sought to extend the product range to include convenience," he says. "By doing so and by adopting a flexible approach, this is likely to generate a higher footfall from local clientele."
The other option is to go posh. There are now thought to be some 600 independent stores with a specialism in wine. As their counterparts generalise by widening their offerings into convenience and distress purchases, they have taken the decision to specialise by offering products that are simply not available in the multiples (which now account for 83% of off-trade wine sales 52w/e 6 November Nielsen) while ensuring well-trained staff are on hand to advise shoppers.
Patrick McGrath, MD of wine merchant Hatch Mansfield Agencies, says there has been nothing short of a "rebirth" in specialist wine retailers since the collapse of FQR. Graham Wharmby, independent sales manager at Boutinot, reports increasing interest from new entrants, many former FQR store managers. "Initially there were fewer than we'd hoped but they are suddenly starting to come out of the woodwork now," he says.
The interest is driven by increasingly adventurous consumers. "The interest in wine is getting bigger and bigger, and people really do like looking for something different," says Kai Horstman, who opened Tivoli Wines in a former Wine Rack in Cheltenham in July. "Shopping for wine in supermarkets is not very enjoyable and that's why indies are doing quite well. People like spending time chatting about wine."
The independents that picked the juiciest morsels from FQR's remains are now reporting growing sales. Laki Christoforou, director of Venus Wines and Spirits, the independent chain that now operates 22 stores under the Wine Rack fascia across London and the south east, believes Wine Rack was the jewel in the FQR crown. "Wine Rack was profitable it was part of a much bigger business that was losing money, so it got dragged down," he says.
Christoforou says that by June this year, like-for-like sales across his stores were up to 40% up. "This is because we have continued offering decent wine on the high street with good, knowledgeable staff," he adds. "This gives us a point of difference to most other corner shops and supermarkets. We're now the Majestic of the high street a specialist."
Wine from small to medium-sized producers is another recurring feature in the specialists. "A lot of the wine suppliers I deal with get their stock from small producers," says Trina Osbourne, who runs Trina's Wines in a former Wine Rack store in south-west London. "We do tastings every weekend and most evenings. We've got a tasting table as well, which we use when we were Wine Rack it was mainly used for display."
The specialists have also ditched many of the pricing mechanisms FQR used in its bid to compete with the multiples. Price is, of course, still important but offering quality and knowledge is more so. "Three-for-twos went straight away," says Christoforou. "They were selling Moët for £50 a bottle on three-for-two when it should have been going for £28-£30. We stopped that. Customers can see through that."
Cask ales and ciders are also proving a hit with a growing number of independents, including the Jug & Bottle in Bubwith in the East Riding of Yorkshire. Owner Louise Smith, who established the business in 2002, says the store sells 110 pints a week and also offers 16 draught ciders. "You need diversity to attract different groups of people," she says. "But if it wasn't for the wine I don't think we would remain open."
Ingenuity and an eye for location have helped many survive and some thrive. The prime stores in the FQR estate were snapped up quickly and are paying dividends to those operating them now.
Chas Majeed, executive at M&O Trading which runs 38 stores under the Hartleys and Offie fascias in the Brighton area says sales at the 19 Threshers he's bought have risen by up to 30% thanks to the removal of the automated ordering system, which he says routinely misallocated stock.
However there's no escaping the fact that 1,000 stores in the former FQR estate primarily smaller properties on residential parades and street corners have now been returned to their landlords. Following the scrapping of business rate relief for empty commercial properties in 2008, landlords are losing cash on vacant units. "They have been hit hard," says Geoff Harrington, a solicitor from law firm Thomas Eggar. "Many are seeking to convert their properties back into residential use."
Those that are making a go of it have really had to raise their game. "The good guys have fairly clearly defined what they're doing and they're not competing with supermarkets," says Wharmby. "They're staking their claim on a different position in the market and doing it very well. They're increasingly professional."
With VAT hitting 20% next month, they'll need to be.
Plenty to toast
With growing numbers of indies setting up as specialist wine retailers, the sector looks set to be the scene of one hell of a showdown. But Majestic Wine, the undisputed king of the specialists, isn't worried, says COO Steve Lewis.
"There's room for all of us," he says. "It means we have to make sure we're right at the top of our game."
They're certainly doing something right. Last month Majestic reported a hike in first-half profits of 20% to £7.3m, with like-for-like sales up 7%, bringing revenues to £117.6m. Central to this success, says the company, is investment in its staff, all of whom must sit the WSET Advanced Certificate after about six months on the job.
Around 145 either hold or are studying for their Diploma, which requires two years of study and is one notch below Master of Wine standard. Staff are "absolutely critical" to Majestic's proposition, says retail analyst David Stoddart of FinnCap. Operating from warehouses offers an economical means of doing business, he adds, while a focus on quality gives a strong point of difference from mainstream retailers.
"It ticks so many boxes at once," adds Stoddart. "It doesn't hurt that a reasonable chunk of the market is in the hands of off-licences offering none of the things Majestic does. The format is powerful because it provides a wide range of quality wines at very keen prices. It's more of an American approach ."
The formula has barely changed in the past decade. The focus on fine wine has increased (all 161 stores will eventually have areas devoted to wines over £20) and minimum purchase has been cut from 12 to six bottles. But Majestic's simplicity continues to appeal to consumers and investors alike.
Dispense this
Supermarkets do wine. But advice doesn't go much further than tasting notes featuring a handful of interchangeable and unenlightening adjectives (velvety, smooth and so on). Requests for more advice are usually met with a shrug. Requests to try before you buy are met with incredulity.
So the indies are looking to cement their USPs namely unusual wines sold by staff who actually know what they're talking about by offering samples. But opening a succession of bottles can be expensive and wasteful, so growing numbers are buying or leasing dispensing units to allow customers to sample small quantities without exposing the entire bottle to oxygen, which would ruin it within days.
The innovation offers merchants the chance to encourage shoppers to trade up and provides some with an entirely new business concept. The Sampler, a London independent with two shops, charges shoppers between 28p and £70 to try any of the 80 wines it has open for sampling.
"A lot of grape varieties and wines are a little foreign to some people," explains Kai Horstmann, owner of Tivoli Wines in Cheltenham, which uses an eight-bottle dispenser. "If they're over £10 people might be a bit reluctant. People tend to buy what they try. It's proved very helpful for upselling. It's worth its weight in gold."
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