Majestic attributes share slide to ‘general nervousness’ over consumer confidence

Majestic has attributed concerns about its falling share price to “general nervousness” around consumer confidence and the likely hit to sales of Naked Wines following its withdrawal of marketing spend in the US.

Majestic’s St Alban’s store, one of its ‘early adopter’ stores

Following the publication of the company’s results on 15 June, Majestic’s share price fell from around 384p per share to around 311p a week later (22 June) although it has since rallied slightly, currently standing at around 316p.

Speaking to db during a recent store visit, a spokesman for Majestic said that the share price slide came from a combination of factors, including shareholders’ wider concern over the economy.

“On the morning of the results, [furniture retailer] DFS issued a warning and people are worried about the economy, about what will happen with the price rises in wine, and falling demand, so I think there is general nervousness around consumer sentiment,” she said.

According to The Telegraph, DFS blamed the warning – and the subsequent 20% share plunge – on “customer uncertainty regarding the general election and the uncertain macroeconomic environment”.

However she also pointed to Majestic’s decision to withdraw marketing spend from Naked Wines in 2018 in order to reallocate funds to its higher-performing customer acquisition channels which it said was likely to result in a “slight dip” in the top line during 2018. However the retailer remained confident, citing clear customer demand, with the results and key performance indicators (KPIs) demonstrating it had found a “winning formula”.

“The main reason the price has fallen is because we said the sales growth of Naked Wine would slow in 2018 and increase again in 2019, because we said we would take out investment in marketing following the failed marketing campaign [in the US last year],” she added.  “The fact that we have 7% more customers and a 68% customer retention gives some security for the future, even if people are worried about what is going to happen.”

Naked Wines USA, which launched last year, was forced to shelve a high-cost direct mail campaign to recruit ‘Angels’ in the country, which resulted in fewer customers than hoped, hitting the company’s profits over the 12 month period. Along with a slump in its commercial arm, this was one of the key reasons for Majestic issuing a profit warning in September last year, which prompted a 25% plummet in the share value in a single day, which the FT said was the worst in the company’s history. The share price continued to fall until early November, when it reached its lowest point in five years at 277.25p – less than half the value of the five-year high of 590p in November 2013.

Brexit effect

Richard Weaver, Majestic’s buying & merchandising director [picture credit: Lowres]

Majestic’s buying and merchandising director’s Richard Weaver added that the retailer had not seen any changes to date in consumer buying behaviour as a result of the economic uncertainty surrounding Brexit.

Speaking to db in an exclusive store visit last week, he said: “I’m not saying there won’t be a big chance in consumer behaviour, but it’s too early too call – any shifts we’ve seen in buying pattern might be to do with our promotions.”

“We’re still confident but we don’t operate in a vacuum.”

The market had behaved as expected in the last year, he added.

“We expected input cost increases to be reflected in sales prices in January, and it’s pretty much what we saw. We monitor our competitor prices and we saw a step change of between 4-6% which was very consistent across all retailers.”

He pointed out that although there had been a 15% currency impact, prices were not going up that much.

“This is an effect of the pound, so it impacts global market and is reasonably consistent whether you are buying in dollars, Aussie dollars, the Rand or euros. What that means is we’re not seeing European wines shooing up and other New world wines coming down, it is not a rebalancing of currency within the wine market.”

As a result of the cost increase, retailers were having to be increasingly “canny”, especially in view of shortages in certain regions and appellations across Europe, he adde.

“You have to bear in mind that consumers have budgets and if prices are going up, it’s best we check that our range matches with patterns of demand.”

“If I’m being honest here, there is not a lot of good news on terms of abundance of harvest, currency movements or duty, but it’s a big world of wine, and our approach – and so far our customers too – is to be more experimental and canny in seeking out value. And there are still parts of the world that over-deliver in terms of quality and value and over time, those are the trends we will see.”

He pointed to areas such as Portugal, where the retailer’s best-selling red wine comes from, and South Africa as particular “bright spots”, along with good examples of declassified Vin de France from areas of France, including Loire, which offers “compelling prices” at a time when appellations such as Pouilly-Fumé and Chablis have been hit by short harvests.

“We have to recognise there is more to deliver that style of wine than just the famous appellation, and we have to be clever about how we deliver it,” he said.

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