Franchisees voice sale fears

18 February, 2011

Bargain Booze franchisees have voiced concern for their future after its private equity owner revealed it was considering putting the chain up for sale.

ECI Partners has appointed accountancy group KPMG to carry out a strategic review, including looking at a possible sale or refinancing of Bargain Booze, which operates 640 franchises.?The company bought the UK’s largest off-licence chain – estimated to be worth £90 million – in January 2006, when the firm backed a management buyout for £63.5?million. Last month the franchise chain reported pre-tax operating profits of £13.2 million – up 17.3% from £11.3 million the previous year.?Joint managing director Matthew Hughes told OLN ECI had always intended to review its involvement after five years, and said KPMG had been instructed to “test the market to see whether the timing is right to sell or to refinance the company”, adding it was too early to speculate on potential suitors.

News of a possible sell-off has prompted concern among franchisees, with some fearing a different owner would seek to hike costs. One franchisee who contacted OLN said: “It is talking about a possible sale, but doesn’t have any regard for the franchisees. There is a concern that someone else could come in and squeeze the margins further. The management needs to remember we are its only customers. The franchisees have to come together and galvanise in some way to make sure our concerns are heard.”?The move to establish a forum for franchisees was backed by another retailer, who said some franchisees were struggling amid mounting overheads and pressure on margins.

He said: “There needs to be a franchisee organisation. There used to be a committee, but I can’t remember when it last met. If there is a new owner, it needs to be someone who understands the model. I hope someone benevolent like Sir Michael Bibby makes a move, because he knows that franchisees have to make a decent living.”?Hughes said: “The vast majority of shops are doing fine and are up year on year. The ones that aren’t up aren’t investing in stores, which we advocate as part of our internal growth programme. From a margin point of view, we are not making any more per store and franchisees’ margins have increased this year.

“Our support has been rated as the best in class and I have a heartfelt belief that we are the best in the industry. We would win the Pepsi Challenge against any other operator. The vast majority [of franchisees] are extremely satisfied with the service.

“I don’t believe there are any significant issues within the business, and if there were, we would be dealing with them. It’s a symbiotic relationship – if we succeed, they succeed and vice versa.

“In terms of any potential investor, no investor is going to do anything different to what we have done in the past. As a franchisor, our profit is reliant on the profit of our franchisee network.”?David Stoddart, an analyst with Finncap, said he could not see a clear potential buyer for the business.?“I can’t think of a trade buyer which would be an obvious player. It’s a unique business model in the UK, so it’s not as though it logically slots into anybody’s operation,” he said.?But Stoddart believes other private equity houses might be interested as the business has the potential to generate cash.?

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