What next for the franchisees?

05 February, 2010

It’s been a turbulent journey for First?Quench’s beleaguered band of?franchisees, but the future is about to become clear. Most of the brave souls who took the plunge in 2006 while so many others were deafened by alarm bells will, in the coming weeks, tie up some loose ends with FQR administrator KPMG and officially join the ranks of Britain’s independent drinks retailers.

The question now is whether the 60 remaining franchisees will do so as one, or as separate entities. One thing is for sure, however – they won’t be allowed to use the Threshers name, as it’s been bought by SEP Properties, which is using it to brand a new website.

Collective rebrandingAccording to Geoffrey Sturgess, the lawyer acting for 55 franchisees, no tears will be shed as the fascia boards are torn down. “I can’t imagine there is a single franchisee concerned by the fact they have to rebrand,” he says.

“The question for them at this stage is whether they are going to rebrand individually or collectively. Between them they probably have a £25 million per annum turnover. There is substantial sense in them forming

into a buying co-op­erative, and we’re already talking about that with some of the franchisees.

“You could have 55 stores with a common buying policy and a ‘head office’ not?owned by any, which chooses, sources and purchases supplies, taking advantage of the buying power they would have.

“You would have a series of stores – Fred’s Wine Store, the Offie or whatever they want to call their individual stores – all selling roughly the same stock because they’re all buying it for the same cost.

“Alternatively they could say, hang on, there’s an advantage to be gained by calling ourselves something like Fruit of the Grape, collectively buying, branding and owning a trademark and operating as though they were a chain.”?Sturgess cites Best Western Hotels as a model: the chain would impose minimum standards on members, but retailers would be free to leave at any time.

Since FQR’s collapse, franchisees – most of whom trade as Threshers, but some using the Wine Rack or The Local fascias – have been living a hand-to-mouth existence, taking cash daily from the till to replenish stock on a dash to the cash and carry.

Sturgess says one supplier is offering the group credit terms, and he is hopeful others will follow. The loss of First Quench has, he argues, left many suppliers short of a vital route to market and its former franchised shops represent a very low risk.

Franchisees have achieved a “fabulous” outcome from negotiations with KPMG, he believes. The original head lease valuation of £10,000 a shop is being negotiated, which adds more complexity to the proceedings, but could see many achieve a very good deal for themselves.

“It’s moving towards almost the best of all possible outcomes,” he says. “Hamptons, the valuer, is currently conducting a back-of-fag-packet valuation on every property where the franchisee has expressed any interest at all.

Best of three“We’re going to go back to Christie & Co with a great big list, basically saying one of three things. This franchisee wants to buy the head lease and this is how much the valuation has come in at; or this franchisee has no desire to continue trading and wishes to surrender its occupational lease to you and stop trading.

“Or thirdly, this franchisee would like to stay in the premises and act as an independent, but we believe the lease has a negative value. We imagine you’re not going to want to pay us for it, but we could endeavour to obtain a surrender of the First Quench lease to the landlord and the granting of a new lease to us.

“That, of course, leaves the landlord picking up the negative value, which is likely to be the dilapidation costs on the flat upstairs which hasn’t been used. But at least it means they will have an ongoing tenant paying rent.”?

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