Lanchester Group to sell ‘satellite’ warehouses as interest rate and duty rise bite

The Lanchester Group is looking to sell some of its ‘satellite’ warehouses and consolidate Lanchester Wines at its Durham HQ, in part due to impact of duty rises and interest on the development of the ground-breaking new bottling facility, Greencoft Two. 

In financial statements filed at Companies House this week, Greencroft Bottling Company, part of the Lanchester Group, said that it had had a challenging year – as much of the wine industry had – with the second half impacted by customers cutting back on stock holding largely in anticipation of the 20% duty rises introduced in August and rising interest rates.

“The much higher interest rate has had a major impact on profitability regarding our new Greencroft Two building, but we are an asset rich group so intend to sell one of our large warehouses which will solve the issue moving forward,” it said in the strategic report filed at Companies House.

Further to the financial results, group chief executive Tony Cleary told db in a statement that the company’s main focus was the building of Greencroft Two, the purpose-built 220,000 ft2 bottling facility that will double production capacity to around 400 million litres of wine per year.

“We started this project two years ago and budgeted £15million, we’re now at £21million (and we’re not yet finished) which is at least 30% more than we anticipated mainly due to increasing cost of materials. We’re building a sustainable building so we’re somewhat restricted to which materials we can use, which also bumps up the cost. And, of course interest rates continue to rise: we started this project at 2.5% interest and its now increased by nearly three times this,” he said.

The new Greencroft Two is in effect a “mini power station”, Cleary said, which is powered by its own 3 MegaWatts solar power array, one of the largest in Europe, which was boosted last year with the introduction of a more efficient PV system covering the entire roof and highly advanced thermal insulation. When Greencroft Two is complete, it is estimated that the solar panels and existing on-site wind turbines combined will generate up to 8 million KiloWatt hours per year of clean, renewable energy.

It will also be able to accommodate up to 10 bottling lines and seven ancillary lines for bag in box, cans, pouches, key kegs “or any new type of sustainable packaging” the company said.

Greencroft Two’s first line – a new line capable of filling up to 20,000 bottles an hour – is due to start production this Spring and the Greencroft Bottling team will start to move into the new facility. As a result, the next 12 months will focus on consolidation, he said.

“The completion of Greencroft Two provides the opportunity to sell some of our satellite warehouses and consolidate Lanchester Wines back to our Durham HQ,” he said. “We’re an asset rich business and have not previously sold off any of our portfolio [but] we’ve recently listed our Abbotsford Road warehouse, named Geo5, which includes one of our leading edge geothermal heat pumps using warm water in the disused Felling Colliery mine workings to provide renewable heat for the building.”

According to Cushman & Wakefield, the commercial estate agent marketing the 180,785 sq ft warehouse, the “unusual” warehouse (which is owned by Lanchester Wine Cellars Ltd) benefits from subsidy payments from OfGem, “which could be as high as £1m per year, until September 2038”.

Wider challenges

In his statement to db, Cleary continued that while the company continued to mitigate a difficult global climate with rising inflation and ongoing challenges, “we are in a solid, sustainable situation, and we step into our next financial year in a strong position,” he said.  “We are a diverse group of businesses spanning different sectors and various customer bases. This was a strategic development plan to ensure that, as a group, we remain strong with each business supporting the others as needed. This has particularly worked to our advantage over these challenges in recent years”.

The wider Lanchester Group – which comprises Lanchester Wines, Greencroft Bottling, The Wine Fusion, Spicers of Hythe, Bon Bon’s Wholesale, Lanchester Properties, Spirit & Co and Full Circle Brew Co – had enjoyed its tenth consecutive year of record results, he noted, with turnover in the year to 30 June 2023 reaching £143 million up from £127 million in the last financial year.  However EBITDA dipped slightly (from £9.6million to £8.95million), which Lanchester attributed to the increased interested rates, demurrage fees (fees that shipping lines charge on containers that are left in the port yard for longer than the agreed ‘free days’ due to holdups or congestion) and the ongoing impact of a volatile labour market.

Cleary said the last 12 months had been “a perfect storm of elements outside of our control”  which had seen the group hit with mounting costs “from all angles” which had reduced its core commercial profitability.

“Labour costs have increased because we maintain our stance on the importance of investing in our people. We’re a family business and regard our team as part of this family, and so we continue to implement annual wage increases. Last year we also gave every member of our staff two standalone cost of living payments. It’s important we retain great people and remain a competitive employer, we’ve maintained our Group staffing numbers at 550 and are still the largest employer in the area,” he said.

The wine businesses were hit with “massive” demurrage fees, he added, a direct effect of global shipping price increases. “This is a disgraceful situation highlighting scandalous practice and has negatively impacted every wine importer and, ultimately, the price of every bottle of wine,” he said, although noting that improvements were starting to be seen, and the company was continuing to seek alternative solutions.

Greencroft Bottling recorded revenues of £69.968million in 2023, up from £62.772million last year, although operating profit fell from £3.235million to £2.657million. EBITDA also fell, down from £5.111million to £4.291million. Meanwhile in separate accounts filed at Companies house, Lanchester Wine Cellars Limited  recorded revenues of £60.203 million, up from £51.360 million in 2022, with operating profits of £1.774 million, up  from £1.165million in 2022, noting the pressure on profitability due to “exponentially” rising costs, calling it a “very challenging year”, but saying it was “keeping ahead of the game”.