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Retail Profiles |
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| February 2nd 2008 |
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| The high end of Britain’s high street |
by Andrew Catchpole
In a time when most UK high street retailers are shedding sales and profitability, Majestic is improving and expanding. Andrew Catchpole takes a closer look at why this particular company is doing so well, when all the others around it are suffering. He suggests it’s their philosophy that makes them different.
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Majestic Wine PLC’s Annual Report and Accounts 2007 opens not with a summary of the enviable growth of the company, but a brief note of congratulations to five of its staff on being awarded WSET awards of excellence. One, Claire Dawson, is named as being the top Diploma graduate of the year. It’s a small but significant insight into the philosophy that helps drive Britain’s largest warehouse wine chain forward year-on-year. It holds a truly niche position in the market, combining off high street sites, a minimum one mixed case sales proposition, backed by a knowledgeable, approachable staff and a keen eye for marketing and promotion of its fluid and undeniably well-sourced range of 800-odd wines. In other words, Majestic is a very individual multiple operator and one whose business model is clearly paying dividends.
Against a background of overall market stagnation and troubled high street operators, Majestic’s figures make for impressive reading. The company is in its fourteenth consecutive year of growth, with the most recent year-on-year figures showing pre-tax profits up 14.1% to £16.2m ($33m/€28m) and total group sales up 11% to £191.2m. The number of customers is also up 7% to a footfall of over 400,000 individuals. Put another way, roughly 1% of British adults bought at least one case of wine in Majestic over the past 12 months and over 340,000 people, according to the company, are regularly ‘active’ in purchasing.
Customers prepared to spend
This increase in customers and sales can, of course, be in part attributed to the on-going roll out of new retail sites – currently at 136 with another eight planned for this financial year – but the real blow for the competition is revealed in the increase in customer spend. Average price paid per bottle is up 16p to £5.75, with Majestic’s minimum buy mixed case of 12 policy pushing the average spend to £123 ($252/€179), up from £118 over the previous financial year. It is no exaggerations to say that Majestic is currently the glowing success story of British wine retailing, succeeding both in attracting customers and moving them upmarket where others have been over-reliant on heavy discounting and big brand volume sales.
Growing multiple grocer dominance has, in a bizarre twist, played its part in boosting Majestic’s fortunes. Supermarkets first sucked the life out of high street retailing with out of town super stores, then, as a finale, moved in to the high street with convenience stores of their own. Thresher’s troubles and Oddbins lacklustre performance has played to Majestic’s strengths as a multiple specialist wine retailer offering car parking, predominantly on accessible edge-of-town sites, with a wine portfolio clearly aimed at the mid-to-upper-mid market consumer. Consider these comments recently published in conjunction with Decanter’s award to Majestic of High Street Retailer of |
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Retail Profiles |
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the Year. “We thought long and hard about whether to give an award in this category this year, such is the decline of high street retailing in the face of the neglect at Oddbins, and the
relentless chasing of promotions at Thresher’s and the fact that many Majestic stores are not really high street at all”. The editorial goes on to say that high street and supermarket categories will be amalgamated in next year’s awards as: “No other [high street] retailers were of sufficient quality to be short listed”.
Emphasis on service
Of course, Majestic’s success is not purely down to the decline of high street retailing. Chief executive Tim How says that his main competitors are the likes of Waitrose, Sainsbury’s and Tesco and stresses that Majestic has never operated in the traditional high street sector. However, against such heavyweight competition he remains confident that Majestic can grow further still. “Our primary strength is in having very talented, well-trained staff in store and an ever improving range,” he says. “We have a level of customer service and wine knowledge that supermarkets will always find hard to match.”
Staff turnover is low for the sector, with a strong graduate recruitment programme and WSET training, along with incentives such as tutored tastings and occasional trips to meet winemakers all contributing to morale. Graduate trainees are pushed through their WSET Advanced Certificate within six months and Majestic has 140 staff either studying for, or having passed, their Diploma in 2007. Staff appear, pictured, throughout the price list, adding their own quotes and thoughts on the wines, and a similar flexibility allows staff to highlight personal choices for promotion and tasting in-store. Head office, too, is staffed with many people drawn from the shop floors and internal promotion where possible is embedded in the company’s philosophy. This, in part, is down to a strong ‘family’ ethos imbued by John Apthorp, former chairman of Wizard Wines and the man who oversaw the amalgamation of Majestic and Wizard in 1991-1992 after a convoluted early beginning for Majestic (see inset).
More growth ahead
Apthorp, who was known as ‘The Chairman’ among Majestic staff until his retirement in 2005, was joined by How as managing director and the then trading director Tony Mason in a team that expanded the company from 38 stores to 120 in 2005, raising extra capital along the way through an AIM (Alternative Investment Market) shares issue in 1996. Mason also left in 2005, but the Majestic openings continued apace under the direction of How. “We are very clear on how far we can go and believe there is the potential for 200 stores, which means another five or six years of growth at around 10 stores a year, also with the potential to grow our fine wine outlets to 40 stores,” says How. “A limiting factor is finding the sort |
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Retail Profiles |
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of eclectic buildings we operate in.” Car parking is essential, as is the typically carefully researched prospect of an under-served, ABC1 customer base of potential Majestic wine buyers. The company still has a large concentration of stores in the south east where it has historically grown but over the past decade the geographical spread of its outlets has significantly altered. Recent openings have been spread between North and South, East and West, with Bicester, Leamington Spa, Huddersfield, Cheam, Colchester and Sonning typical of sites chosen over the past couple of years. It is, however, fair to say that all of these locations have significant pockets of middle class wealth either residing in the town or living nearby. On an anecdotal note, having a Majestic open nearby - as with Starbucks or Waitrose – is a sign to property owners and prospective buyers that the area is either desirable in itself or, as likely, on an upward curve due to ongoing gentrification. Such is the image of the company, but one rooted in an expansion based on exacting demographic research. Intriguingly, How reveals that the sales-by-the-case policy operated by Majestic originally sprang in part from licencing considerations. In the early 80’s, as Majestic began its growth into a chain, it was unnecessary to petition for a regular alcohol retailing licence if selling alcohol within strictly defined wholesale amounts. “This avoided many of the planning difficulties of applying for open retail consent, which meant that the business could at some future date change the nature of its licence,” says How. “And so it meant Majestic could take on sites where full retail planning would be difficult to gain.”
Nuts and bolts
How says the stores use the same basic layout. “This gives us a lot of flexibility with promotions and to move whole sectors around and plenty of room for tasting areas.” It also allows for a ‘pile it high’ approach favouring the stock-holding, sale and dispatch of case quantities of wine. With an inevitable high spend per order, levels of customer service can be kept high while costs are kept down. Quality staff, mixed-case sales and accessible, flexible sites are clearly the corner stones of the business. Beyond this, though, lies a company constantly fine-tuning both its wine offering and its routes to market. Addressing the latter first, How adds: “This is not just about physical expansion as we are after attracting more customers as a multi-channel retailer.”
These channels include old-fashioned footfall in the stores, drive-in customers, pre-ordered drive-in collections, plus a free nationwide delivery network, all backed by regular mailings of quarterly price lists, e-mails and other mailed offers to around 170,000 core customers on its database. Majestic was initially slow off the mark when it came to on-line retailing, but has rapidly gained ground since a recent refocus on the sector. In the past year |
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alone on-line orders have risen 35%, now accounting for 7.2% of Majestic’s UK sales and How says he is confident this growth can be maintained at around 10% for the next few years.
A further area of growth has been in corporate sales, now accounting for 26% of UK sales. Majestic has offered corporate sales since the 80’s but it has only been in the last decade – behind competitors such as Oddbins – that it has really begun to exploit this channel. In eight years it has progressed its corporate business to the point that it now employs a team of 25 that actively support and visit account customers - mainly on trade and out of London mid-market bars, pubs and restaurants that are looking for accessible wines for their customers. An intriguing point about this is that it bucks the perceived wisdom in the on-trade that customers will baulk at paying an on-trade mark-up price for a wine they can buy at a fraction of the price off the regular retail shelf. The only blip in Majestic’s otherwise upward bound trajectory comes courtesy of its Wine & Beer World business in France, where sales slumped by 5.2%, reflecting the generally moribund cross-channel trading scene after a significant drop in day tripping ‘booze cruisers’. It’s not something that seems to overly trouble How.
What they’re buying
In the store, too, Majestic bucks the trend both for multiple specialists and grocers, with its sales spread closer to independent wine retailers than its bigger rivals. According to Nielsen data, Majestic holds 3% of the UK market by value for still wines, but 11% of the value for Champagne. “As a buying policy we are trying to find a point of difference from the rest of the UK retailers,” says Chris Hardy, Majestic’s head buyer. “There has been a lot of consolidation both in the retail and supply side and there isn’t really any point in us offering the same as everyone else.” In Britain, Australia may have pipped France saleswise and California surpassed Italy, but at Majestic the reverse holds true. “We are still very driven by more traditional countries with France representing 41% of total still wine sales, which is three times the national average” reports Hardy. “Multiple grocers seem to have turned their backs on France and much of the Old World, which is still largely unbranded, and so people who still want a good selection of these wines have to go to Waitrose, local independents or someone like ourselves,” concludes Hardy.
Majestic’s strongest categories are Bordeaux, Loire, Spain, New Zealand, Chile and Argentina, with Champagne and Rosé also big sellers. In addition, 28 stores currently have a dedicated fine wine section, a number the company aims to grow to 40 by this Christmas. The French slice of Majestic’s sales is growing, in part due to increased sales of fine wines. Traditional Old World ‘regional brands’ such as |
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Retail Profiles |
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Sancerre and Rioja are also mainstay lines. However, the new wave of Spanish wines, plus Chile and Argentina – all of which Majestic has bought with a close eye on trends in the market – are showing sustained growth, partially at the expense of Australian sales.
It is, however, a little disingenuous of Majestic to talk up an eclectic, upmarket sales profile while pointing its finger at the discounting tactics and big brand BOGOF offers of the major multiples. The company operates regular promotions and discounts for purchases on certain lines, often backing these up with staff incentives (such as wine trips) to sell. How is keen to stress that most discounts are offered as part of a longer term or seasonal promotion, which may constructively take in a country, region or style of wine. For example, Majestic’s most recent offers include 20% of any two bottles of Spanish or South African wines, covering both bigger brands and small production labels. These broader discounts are, however, interspersed with short term deep cut discount offers, especially on lines such as Champagne and these will also be heavily promoted in-store and in Majestic’s mailings.
“In addition to offering value for money across the range we obviously have to be seen to be offering value on known value items and brands otherwise we would lose business,” adds Hardy. “But in most cases we have wines that are exclusive to us so this is less of an issue.”
The buying in action
In terms of buying policy the buying team try whenever possible to go direct to the producer. And, as, with many rivals, the buyers will often work closely with producers to ensure a popular line delivers consistency of style to the customer, especially when stocked from vintage to vintage. However, the bulk of Majestic’s portfolio turns over with reasonable frequency. Hardy says that between one quarter and one third of the range is totally renewed within every 12 months period on a rolling basis. “Right across the range, New World and Old, we are very keen to keep bringing new wines in,” he says. “It is important both for staff motivation and keeping customers interested, keeping everything fresh and new.”
These purchases can vary from as little as a case or two of First Growth Bordeaux, to be sold via Majestic’s flagship Fine Wine store in St John’s Wood, London, to 20,000 bottles of Sancerre. “It tends to be in the mid-price bracket, around £8-£10, that I can be most flexible,” says Hardy. “As little as 3,000 to 3,600 bottles, if on the list, means a case to a case and a half per store.” As an example, Hardy recently bought 1,500 bottles of a Chateauneuf-du-Pape that was distributed through the regular stores. It allows a flexibility at precisely the price points at which Majestic’s typical customer will often, if not always buy, allowing for an ‘icing on the cake’ effect of interesting, often eclectic, small production and rarer wines atop the bigger volume, cheaper offerings. Majestic has clearly come a long way since 1980-1981 when investment banker Bill Mullins bought a sole wine warehouse from the receivers and began a tentative expansion with three stores in London’s Battersea, Wood Green and Vauxhall. In that time the company has grown from a curious quasi-Oddbins set-up, known for buying small parcels and piling them high to sell off cheap, to today’s AIM listed countrywide purveyor of both fine and interesting everyday wines. And, despite the inevitable extra layers of complexity brought about by growing to such a size, somehow the chain manages to retain much of the quirky individual ethos that first brought more adventurous wine consumers through its doors. It’s a mix that looks set to continue to succeed.
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