Kings of convenience?

The multiple specialist sector has been hit hard by the supermarkets muscling into off-licence sales. But, with careful repositioning, could high-street off-licences become the ultimate one-stop-shops, asks Gary Werner

THE TIDE of British wine consumption is rising fast.  According to the International Wines and Spirits Record, UK sales have increased by more than 25% since 1999 – and another 19% of growth is expected by 2008.

Britain will soon become the most valuable wine market in Europe.  This should be great news for the off-licence trade, where wine is the leading drinks category.  Indeed, ACNielsen figures confirm that take-home alcoholic beverage sales grew by 3% during the year to November 2004.

The opportunity represented by these numbers has not been lost on David Massey, director of DM Private Equity, the new owner of the Unwins retail chain.  In reviewing the specialist sector that he has just entered, Massey noted, "At the high end of the spectrum, in terms of consumer demographics and spend, there is Majestic, which is widely admired and very successful.

At the bottom end, at least in terms of those demographics, there’s Bargain Booze, and it also makes money."  Majestic and Bargain Booze are commercial success stories, but they are not typical.

Sales across the whole of the specialist sector actually fell by 6% last year.  At the same time, supermarket sales in the offlicence category grew by 6% – and this is the growth that drives the overall Nielsen numbers.

It seems that the rising tide of British consumption does not float all boats.  The likes of Tesco, Asda and Sainsbury’s are established leaders in many sectors of British retailing – from clothing to financial services.

But for the  off-licence trade, supermarkets are estimated by various sources to control between 65 and 85% of total sales.  Such concentration of power creates a difficult trading environment for almost everyone in the drinks industry, from suppliers to competing drinks retailers.

And among those competing drinks retailers, the multiple specialists have been subject to the most pressure. 

Crowded market

"Ten years ago, the specialist sector had the off-licence market more or less to itself," said Roger Whiteside, the CEO of Thresher Group.  "Now, many different retailers sell offlicence products and compete for market share.

Certainly supermarkets are a driving force, but there are also convenience store chains. As a result, we’re trading in a very different environment now."  Thresher is the largestspecialist drinks retailer in the UK.

With an estate of some 2,000 stores, it may have the most significant experience of the pressure on specialists in this new environment.  But Thresher has also shown the greatest willingness to adapt (some would say that it has done so to a fault).

In July last year, the company announced the launch of a new store format, Threshers + Food.  This mid-market initiative sought to combine wine sales with the company’s Leapingsalmon brand of gourmet meal kits.

The foodand- wine concept was trialled at 75 Thresher stores in the London area, and there were plans to extend the formula to more than 300 shops.  But the experiment proved almost as perishable as the fresh food on the shelves.

Thresher Group discontinued the concept this February, reporting that sales volumes were insufficient to make the format a sustainable one.  Many of these outlets have returned to the standard Thresher fascia.

Even so, a desire to tinker with the off-licence format is still on the menu. Last autumn, Thresher Group rolled out a community convenience store brand called The Local.  Shops previously operated as Victoria Wine and Bottoms Up were trialled in a one-stop shop format featuring not only drinks, but bread, snacks, newspapers and even film rental.

The initiative seemed to be inspired by the success of convenience stores such as Tesco’s Metro and Express outlets.  According to Whiteside, the pilot scheme for The Local has been a successful one.

This fascia will now form the valueorientated segment of the Thresher estate.  "We’re converting about 100 stores each month," he said, "and we expect this to be completed with 700 outlets by summer."

These format experiments might be considered an innovative response to a very difficult trading environment.  But some industry observers believe these efforts demonstrate a lack of focus.

They feel that Thresher and the sector would be better served by working on the core business, rather than deviation from it.  Despite such criticism, Whiteside remains committed to exploring new possibilities.

"There may be more store formats in the future," he said.  "We’re in just year two of a fiveyear development programme.  And we’ll continue to experiment so long as we feel there are opportunities to advance our position in the market."

Indeed, the next project starts in June.  The upscale Wine Rack format will pilot a set of stores in London through this summer.  The focus will be on wines from Australia and France that retail in the £7-£15 bracket.

"There are real opportunities for growth in wine sales, so these higher-end stores will offer an extended range," says Whiteside, "and a level of service that combines enthusiasm or passion with WSET knowledge."

Changing faces

If deemed successful, the Wine Rack fascia will extend to 200 stores and form the upper tier of the Thresher Group’s estate.  However, the company’s response to a changing retail landscape includes more than just new shop formats.

In December, Thresher began a partnership with Suffolk-based fine wine merchants Lay & Wheeler to launch a new prestige collection at selected Thresher stores.  In another move, Thresher Group has just announced the permanent implementation of one of its holiday promotions on wine.

Whiteside said, "The three-fortwo mechanic was very successful for sparkling wine sales over Christmas, so this will be rolled out across all of the wines that we sell.  This move represents a way to increase customer spend for each store visit."

The sum of Thresher’s effortsto adapt to changes in the offlicence  market has been dramatic.  But this course of action is not typical of the specialist sector as a whole.  Infact, others have shown fatally little evidence of innovation in the face of commercial pressures.  The recent sale of Unwins provides such an example. 

As a family-owned chain of more than 380 stores, Unwins had been suffering from stagnation for several years. In early 2002, the company announced sweeping redundancies and some range rationalisation as part of a restructuring exercise to improve competitiveness.

Even so, pre-tax results a full year later, showed losses of nearly £2m.  It seemed that the group still lacked any substantive ambition.  Then signs of life appeared last May, when Unwins unveiled its Phillips Newman format.

The trade and consumer press were enthusiastic about the new concept, but the struggling retailer would need significant investment to roll it out to the 50 sites that were targeted for conversion. Talk of a sale began shortly thereafter, and then months of uncertainty followed.

Supplier confidence quickly fell away – along with stock levels at many branches – resulting in a miserable Christmas trading period.