British celebrations boost Majestic profits

Majestic’s 14.5% pre-tax profit growth to £23.2 million was attributed to in-store tastings and British celebrations by CEO Steve Lewis today.

British celebrations boost Majestic profits

Speaking to the drinks business just after the company announced its results, he admitted that the “market was very tough” and that Majestic “had had to work hard” to achieve its profit growth.

However, he also said, “we have got lucky”, before commenting, “There is no evidence of trading down in quality or price when there is a real reason to spend”.

Citing occasions such as the royal wedding, Christmas, the Jubilee, and sunny bank holidays, he pointed out how the British are not compromising on the quality of the wines they consume at home when the weather is good and there is a cause to celebrate.

Hence, looking ahead to the Olympics in London from late July, he added, “We are stocking up for the Olympics, and if the sun shines and we start to win some medals, then we have seen that the UK consumer knows how to party.”

Between these spikes of demand, he explained how Majestic has had to work hard to entice its shoppers with wine tastings.

As many as 38,000 Majestic customers attended tastings or wine courses at the group’s 181 stores last year he said.

He also stressed the importance of sales to businesses over the 12 months pre-April.

“Our sales to business customers grew 6.9% on last year and now represent 24% of total UK sales,” he said.

He noted a “surge in sales” in Central London locations such as Covent Garden since the demise of Oddbins, as local businesses searched for wines, chiller bins, and ice for events and parties.

Meanwhile, sales to the trade he said now account for 12% of Majestic’s business, and Lewis recorded the use of 38 “business development managers” who, he explained, “focus on gastropubs, bars and restaurants.”

“We’ve become part of their business,” he commented, “And they can place an order with any of our 181 stores and enjoy delivery seven days a week.”

Fine wine, defined as labels priced over £20, was a further area of growth for the retailer, and Lewis recorded an 18.5% rise in this sector to take its share of Majestic sales up to 6.2%.

“How can you grow fine wine sales in a double dip recession? It’s partly a function of our store roll-out – we added 16 stores last year, and we plan to repeat that this year – and fitting fine wine areas in existing stores.”

Continuing, he recorded that 83% of Majestic stores now have a special fine wine area with shelving, in contrast to those labels priced below £20, which are displayed as free standing bottles on top of stacked cases.

Online sales have also enjoyed increases, partly due to mobile-optimisation for majestic.co.uk in early May this year.

Transactions through the website have risen 7.8% on last year and now represent 10.0% of UK retail sales according to Lewis.

He explained how the website before mobile-optimisation “didn’t work well on a small device”, but, since the changes, “the page load time has been reduced from 12 seconds to two seconds and the average time spent on the site [by mobile users] has gone up 20%, and the revenue up by 50%, so we’ve unlocked a box.”

In terms of the types of wines being consumed by Majestic customers over the last year, Lewis highlighted the strong demand for Spain.

“Spanish wines are doing very well, partly because of the good prices on Rioja due to the economic situation, but also because Albariño is fashionable, as well as Toro and Rueda.”

Elsewhere, he recorded a growth in sales of Italian wine, and a trading up from Pinot Grigio to Gavi de Gavi in whites from the country.

Further, he name-checked Argentina, and said that Majestic now enjoys a 14% share of Argentine wine sales in the total UK off-trade.

New Zealand too is important for the Majestic customer, and 19% of the retailer’s still wine sales are from this one country, ensuring the multiple specialist has an 11% share of the total UK off-trade for New Zealand wine.

Its biggest share however can be found in Provençal rosé, which Lewis said was “hugely fashionable at the moment, and our share of Provençal rosé is 35.7%.”

Looking ahead, Lewis expressed his hope for a favourable impact from Majestic’s decision last week to reduce its minimum delivery size from 12 to six bottles.  

“We observed over the last year that shoppers online would put six bottles in their basket and then drop out of the website – as the six bottle in-store minimum had become better-known, people assumed they could buy in that quantity online too.”

And already, he reported the positive influence of this change, recording the sell-out of a 1,000 bottle parcel of Bourgogne Hautes-Côtes de Nuits 2009 Domaine Legou in just three hours last week.

At £15 per bottle, the new six-bottle minimum allowed online buyers to pick up the stock for £90.

“So an obscure red Burgundy sold out in three hours – there is no way that would have happened with a 12-bottle minimum purchase,” he said.

Finally, when asked about the impact of the Scottish government’s ban on multi-buy deals in October last year, he said, “Funnily enough it has helped us in Scotland.”

This, he explained, is because it allows those shopping in Scotland to be “more varied in the product they buy.”

This is because price reductions are only offered to English shoppers when two bottles or more are bought, meaning customers can only buy three different bottles to meet the six bottle minimum purchase.

In Scotland on the other hand, the offer is awarded on single bottle buys, so you can get six different wines in any one shop.

Would Lewis therefore extend the pricing policy to south of the border?

“I only learnt this fact on Thursday lunchtime so I need to do a lot more analysis first,” he said.

 

Highlights from Majestic Wine PLC’s preliminary results for the 53 weeks ended 2 April 2012:

Group profit before tax increased by 14.5% to £23.2m (2011: £20.3m).

Total sales up 8.9% to £280.3m (2011: £257.3m).

Like for like sales in UK retail stores up 2.6%.

Final dividend of 11.8p net per share, bringing the total dividend for the year to 15.6p, an increase of 20.0% on last year (2011: 13.0p).

Lay & Wheeler: Profit before interest and tax at £1.9m (2011: £0.7m).

Majestic in France: Profit before interest and tax at £1.4m (2011: £1.0m).

Key metrics:

Average spend per transaction up £2 to £128.

Transaction numbers up 8.3% to 2.2m.

Average bottle of still wine purchased at Majestic is now £7.34 (2011: £6.94).

Online sales increased 7.8% on last year and now represent 10.0% of UK retail sales.

Majestic Commercial: Sales to business customers grew 6.9% on last year and now represent 24.0% of total UK sales.

Sales of fine wine (priced at £20 per bottle and above) increased by 18.5% on last year, representing 6.2% of UK store sales.

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