Carry on at your convenience
Bargain Booze boss Matthew Hughes on succeeding in the recession.
There’s not much good news around these days – especially not in the troubled specialist off-licence market, where First Quench has gone into administration and Oddbins has yet to make it into profit. Even star performer Majestic’s pre-tax profits dipped 22% to £12.7 million in the past financial year, although this week’s interims suggest it’s regaining lost ground with profit before tax up 9% to £6.1 million to September 28.
Bargain Booze stands out like a not-so-sore thumb among the tales of doom and gloom. Its turnover and profits have been rising steadily as others faltered, and the 2008/9 financial year saw it make pre-tax profits of £11.3 million from sales of £356.7 million.
That is a rise from £11.1 million profits on £341.7 million turnover in 2008 and £10.5 million profits on a higher turnover of £358.9 million in 2007.
Bargain Booze has also been steadily opening shops as others shut their doors. Churn means the total estate has been hovering around the 600 mark for roughly the past year and a half, but the franchise group has been making headway with its convenience offering, Bargain Booze Select Convenience.
“Trade’s good,” joint managing director Matthew Hughes tells OLN. “Generally speaking, our shops are trading up year on year. It’s been a reasonably buoyant summer. We have had a mixed bag of weather but probably, on balance, it has been better than the past two years.
“The recession hasn’t hurt us in maybe the way it has hurt others because of the discount proposition and the rise in aspirational thrift – I can see the benefits for our franchisees. In some areas overheads are going up, but generally speaking, people are coming out ahead of the game.”
It’s easy to see that an era in which defined discounters Lidl, Aldi and Netto are really coming into their own should herald good times for a brand called Bargain Booze. However, Hughes notes it is also a good time to be moving into the convenience market. The Select Convenience part of the franchise is growing rapidly, from 50 shops at the beginning of this year to more than 65 today – a mixture of conversions and new openings.
Hughes says: “The time is right for convenience, because during more troubled times, consumers live more hand to mouth. If they have got a pound in their pocket they will spend that today rather than wait for the end of the week and do a big shop. That plays into the hands of convenience retailing, and we are benefiting in terms of our route to market.”
Hughes adds: “The discount proposition of our alcohol offering and the fact we have built up a credible convenience offering has fallen at the right time for the consumer.
“While we could never be arrogant enough to say the business is recession-proof, ours is resilient. And because we are dealing with professional retailers who are credit-worthy we are not seeing any real difficulty when obtaining money for investment.
“There is a huge difference between Bargain Booze Select Convenience and an ordinary convenience store,” says Hughes. “Bargain Booze is a destination shop, whereas I suspect with some other off-licence chains the weekly alcohol shop is done in the supermarket, while they are used for top-up shops.
“Bargain Booze is where you do the whole alcohol shop for the week – that is our aim,” he says. “Most convenience stores don’t get alcohol quite right, but we would say that we have a different approach to alcohol than others.
“The traditional independent-mentality c-store approach is trying to be all things to all men – but do you need to have every brand of single malt whisky known to mankind? No, you need the top sellers, a totally controlled and targeted range that appeals to what people want to buy in the majority.”
So why not convert the whole estate to Bargain Booze Select Convenience?
“They’re not all big enough, and not all in the right area – in some areas convenience is just not needed. Our most profitable shops per square foot are the smallest – standalone off-licences less than 500sq ft are turning over £17,000-£19,000 a week. Convenience stores that are anything up to 3,000sq ft are a highly different retail proposition.”
Fifty-five per cent of new openings are still standalone off-licences. That is slightly lower than the 60% at the beginning of this year, but Hughes insists he is still committed to specialist drinks retailing.
“The heart and soul of what we do is specialist off-licence retailing. That is the main brand, that is the main fascia and we will never move away from that,” he says.
The franchise model is one of the keys to Bargain Booze’s success – a feat First Quench failed to emulate when it made the move into franchising in 2006, only to put the scheme on hold less than two years later.
According to Hughes, it’s a model which is fully supported by the company’s majority shareholder, venture capital company ECI, which bought the business in 2006.
“It understands the franchisee-franchisor relationship, which is important, because fundamentally it comes down to the fact that as a company we have to make money, the franchisees have to make money, and we have to keep it in business.
“It is extremely on-board and understanding of what we are trying to achieve. What is more, it is a long-term investment, as far as private equity is concerned,” he says. “At the moment everything is going in exactly the right direction. Three and a half years into the deal it has worked really well for us. It has just supported us in what we are doing.”
One of Hughes’ main tenets is that from a customer’s point of view, there should be a consistent brand across the Bargain Booze estate, so they know what to expect – in that respect it should be no different from a managed estate.
“Any customer who walks into any branch of McDonald’s or BHS knows what they are getting – and so it should be with Bargain Booze. From a customer’s point of view it’s a retail chain,” he says.
“The benefit of the entrepreneurial culture of a franchise means the franchisees run their own businesses, so more than a manager they are prepared to look at it, not just as something they are getting a wage for, but as something they are passionate about. This is their livelihood.
“In terms of building a brand, we have to have very clear ideas about what that brand is and what it stands for. We have the trademark on the name Bargain Booze, so anything that’s referring to bargain booze is breaching our trademark. We do have an extremely well-realised, established brand.”
However, he does admit that the company’s name can be misinterpreted. “People take one look at our name and think we are tacky retailers who want to sell to anybody at any price, encouraging binge-drinking.
“It is a nice shortcut to thinking – the kind of irritating thing we have to put up with which really doesn’t reflect the truth of the matter at all. I get frustrated with it. Despite the fact that if people did any digging beyond the surface of what we do as a company they would see that we are responsible retailers first and foremost, that is the whole company ethos.”
Another important element for the business is its rigorous commitment to internal communications. All franchisees are given a presentation roughly every six weeks to keep them up to date with promotions – the team at Bargain Booze’s head office in Crewe holds these meetings four times a week, nine times a year.
“This avoids needing to rely on a network of area managers,” explains Hughes. “Franchisees can pick up the phone to any one of us. They can get face to face with us, it doesn’t matter if it is me, [joint managing director] Tim Stanley, the finance director or trading director.
“Rather than talking to area managers, they can speak to the guy at the top, there are no ivory towers. From day one we have tried to maintain a small company feel, even though we have become a big company. It is not always easy. It is not always possible, as you do grow you have to have more formal arrangements because otherwise people wouldn’t know what they are doing. But wherever possible we have tried to maintain the feel of a small company. Anybody can talk to anybody.”
Hughes believes the prospect of the government’s increasing intervention in alcohol sales will mean more independents turn to a franchise group for support. “The march towards ludicrous legislation is going to be our most interesting challenge for the next 12 months – as it has been for the past few years,” he says.
“Looking at the comments David Cameron has been making recently, a change of guard will mean the new boss is the same as the old boss. There is an increasing blurring – or Blairing – of the lines,” says Hughes.
“Given what is going on, I think that is increasingly attractive to franchisees. Independent retailers look at what we do and the market thinks: ‘Do I need support in the face of legislation coming in and the challenges out there in the competition? Do I need a bit of support from a group, symbol or fascia?’ Symbols and fascias do a certain job, but we are talking about a franchise – a totally different brand that stands for something.”