Big 30 Wholesalers: How wholesale is chopping and changing

Versatility is the watchword for Britain’s biggest wholesalers in 2012. Look no further than Booker for proof. The cash & carry king has already developed a very credible foodservice arm. With the launch of its Chef Direct service, this June, it’s shown how deadly serious it is about expansion as a restaurant chain and pub trade supplier in the coming years.

Booker isn’t the only one trying its hand at new tricks. Bestway is targeting independent caterers in its own push into foodservice. And the newly decoupled Today’s Group also signalled its intent to boost the foodservice side of its business with the appointment of a foodservice trading director last October.

Meanwhile newspaper and magazine deliverer Smiths News is looking to sell English language books abroad. And Palmer & Harvey is working hard to establish itself in fast-moving convenience lines as it bids to take a chunk out of its cash & carry competitors’ sales. Many fingers in many pies is the order of the day.

This year’s Big 30 table helps explain the diversification. Margins have been squeezed yet again, with the average profit margin for this year’s Big 30 just 0.8%. All have faced rising fuel and product price hikes, amid falling consumer confidence. And whether it’s the supermarket price war, on the one hand, or the decline in eating out, there really is no hiding place.

So what makes foodservice so attractive to the cash & carry operators? Cucina Lux, the parent company of foodservice giant Brakes (the country’s biggest foodservice player and number three in the Big 30) recorded a pre-tax loss of £93.7m last year, as it simultaneously battled with its burdensome £64.7m interest payments and a £40m one-off accounting impairment charge.

Brakes insists its debts are manageable. “Brakes looks at EBITDA or operating profit before exceptional items as a measure of the profitability of the business,” a spokeswoman said. But a senior source at a rival wholesaler describes the situation at Brakes, which jettisoned its UK CEO Stefan Barden last month after just one year in the job, as “a slow-motion car crash”.

Fellow catering supplier DBC Foodservice Group is faring little better, recording a loss of £4.95m (compared with a profit of £1.26m the year before). Part of the loss is down to investment in new infrastructure in order to win new contracts, says MD Chris Horne, but he admits the business has been hit by falling consumer confidence.

Booker is undeterred. Having increased sales to independent caterers from its cash & carries by £100m last year, it promises to become “the new force in foodservice” when Chef Direct, a distribution network aimed at caterers, becomes operational in June. CEO Charles Wilson is bullish about Chef Direct’s ability to win customers away from the national operators.

“We can do something none of them can do,” he says. “In terms of scale we’ve got good buying through Booker Wholesale, some great logistics capability with Booker Direct and some of the ranges we’ve got in Ritter Courivaud [the speciality food wholesaler it bought last October] are second to none. When you put that together I think some of the restaurant chains will say, ‘Yes, I’ll get something better than I can get from other people in the market.’”

Wilson will not disclose his targets for Chef Direct, but says he’ll be disappointed if it isn’t a “material player” in four years. He adds that Chef Direct will also use its cash & carry background to offer customers a transparent pricing structure. “It won’t be, ‘We’re doing a great price on chips for three weeks’ and at the end of the month it actually doubles,” he promises.

Fellow cash & carry juggernaut Bestway is also targeting foodservice following its acquisition of CJ Lang’s foodservice division Martex in 2010, with a particular focus on independent caterers. “Catering is one area where we’ve been underperforming in the market. The overall sector may be declining or static, but our share will increase,” says group chief executive Zameer Choudrey. “It’s a multi-pronged attack. We’ll try to attract caterers to our warehouses, but if they want delivery we’ll offer that too.”

Booker has also spied an opportunity in the pub trade. It’s not so much the fact that last month saw on-trade beer sales fall at a slower rate than the off-trade for the first time in 15 years. It’s once again the state of the country’s two biggest on-trade suppliers.

At Matthew Clark, sales are down 5.8% to £579.1m. WaverleyTBS, meanwhile, saw sales fall 31% to £350m. The company - sold by Heineken in June 2010 - said it had lost three “significant but unprofitable accounts” and 2,000 free trade customers after the closure of outlying regional depots.

The cash & carry operator is looking to cash in on the competition’s woes by growing Classic Drinks, the small Sussex-based pub wholesaler bought by Booker at the same time as the Ritter acquisition. “A typical pub has 11-15 suppliers and Booker will be one of those. Our job is to do a better job with choice, price and service to win a bit more of their business,” says Wilson.

In Booker’s recently refurbished Brighton depot, which opened in October, Classic Drinks has a 3,500 sq ft operation. It offers delivery six days a week, trumping the three days its nearest rival, 130 miles away, was offering. “Classic is evolving into a very strong force within the on-trade supply market,” adds Wilson. “In Brighton, it is probably the second on-trade wholesaler in that market from a standing start.”

Other operators are being pushed down new avenues by declining sales in their core markets. As Smiths News gears up to begin selling English language books in emerging economies (its hand forced by declining news-stand sales at home), the UK’s biggest wholesaler Palmer & Harvey is trying to establish itself as the go-to wholesaler for fast-moving convenience lines, such as confectionery, ambient grocery and drinks. And with the first phase of the tobacco display ban coming in this April, you can’t blame P&H for diversifying - tobacco accounted for more than three quarters of the wholesaler’s sales last year [52 w/e 2 April].

Price guarantees
The new ground P&H is breaking is being supported with a new price-matching tactic that mirrors (or at least mimics) the high-profile price guarantees of the supermarkets. In a campaign launched in the run-up to Christmas, P&H pledged to match cash & carry prices on 600 bestselling non-tobacco lines, which it says make up between 55% and 57% of non-tobacco sales that pass through independent retailers’ tills. It went one further, too, boldly claiming that retailers who stock up in a cash & carry are £2,500 worse off than if they had the products delivered by P&H.

It’s not the only wholesaler to have taken a leaf out of the supermarket price matching book. Makro currently pledges to beat Booker on any items comparable to its Aro own label. Booker, too, has offered a price comparison on its website since 2007, but it has been little used - though with another mysterious website, www.comparethewholesaler.com, surfacing this month, price comparisons look set to become increasingly important. And not just in battling rival wholesalers. Since last September, Musgrave’s Budgens fascia has been matching Tesco on 800 products.

“It’s no longer possible for independents to be pricing as they did before, especially with so many Tesco Expresses and Sainsbury’s Locals opening. We want to be in the competitive set,” explained Chris Martin, Musgrave Group CEO, as he launched the Budgens price match initiative, the first time a symbol group has gone so systematically head to head with a multiple on price.

Another area where wholesalers are changing the rules of engagement is in the products they stock. Spar MD Debbie Robinson says own-label ranges allow retailers to “take control of their own destiny” and to care less about “matching Tesco on a tin of baked beans”. Spar’s own-label S Budget range generated £2m of sales for Spar wholesalers in the two months after its September launch, while also offering retailers a bigger margin than they would make on most branded products.

Meanwhile, sales of Landmark’s own-label products into depots rose by 28% in December 2011 compared with December 2010. LSV Energy Drinks and Number Three Tobacco are regular best-sellers from the range, and the group has recently embarked on a drive to boost sales of its Lifestyle Value range by guaranteeing a 35% gross profit on the products, including 100g of chocolate price-marked at 50p and baked beans at 35p.

“We have a responsibility to react to the economy and real-life pressures,” says MD Martin Williams. “Money is tight and unemployment is high, so consumers and customers are demanding more value. This fits the offering, role and profile of own brand perfectly.”

Margins - down this year for 18 of the Big 30 wholesalers (including 12 of the 15 buying group members) - aren’t just being squeezed by the economy and stiffening competition, however. Many wholesalers have also been heavily investing in their businesses as they follow new paths and expand their core activities.

JJ Food Service opened its sixth depot, in Sidcup, in April 2010 and another, in Bristol, a year later. It has also invested in click-and-collect. “The figures appear flat, but we are on track,” says group general manager Terry Larkin. “We dropped prices to encourage customers to use these systems and are enjoying the benefits.” Sales in the last quarter of 2011 were up 36.6%, he adds.

James Hall’s figures also look down, but it has invested £66m in a brand new depot four times bigger than its previous facilities. Northern Ireland Spar wholesaler Henderson also invested in a new distribution centre - and its foodservice division bought Independent Catering Services in October. And AG Parfett & Sons incurred exceptional costs for redundancies it said would ensure the company was as fit as possible to face the challenges ahead.

“Wholesalers are reinvesting into their business more than ever before to help customers for longer-term benefit. I would only see falling margins as a short-term outcome to help all our customers over a longer period of time,” adds Landmark’s Williams.

As the giants push further into new territories -Booker and Bestway into foodservice, P&H into convenience lines and so on - the boundaries continue to blur. Of course, the other route is consolidation - and the likes of Dhamecha and Blakemore appear determined to stick to what they do best, but with greater scale through expansion and acquisition - but to survive, who knows how grocery wholesale will diversify as a trade.

Smiths News, for one, says it’s looking at carrying new products, possibly food or drink. Could the newspaper wholesaler be the next to stick its thumb in a new pie?