Specialists need to be special

22 January, 2010

Want to buy an off-licence? Join the club. Independent drinks specialists are suddenly in vogue again – though this time without the floor stacks of Party Sixes, Hofmeister and Hirondelle.

There is a mini-scrum to pick up former First Quench sites. Administrator KPMG quickly realised that it could not sell vast chunks of the business to retail chains or corporate investors – instead, much of the estate will slowly re-emerge under the control of independents. They will be looking to claim their share of the £600 million-plus of sales that once went through First Quench tills.

Christies’ head of retail? Tony Evans, says it is “hard to put an exact figure” on how many of the stores will be sold as specialist off-licences, “but the majority of interested parties who have made enquiries and offers have been seeking to continue operating the sites as off-licences”.

But how confident can we be about the future of traditional, mid-market off-licences? To survive, do they have to set themselves up as upmarket specialists, concentrating on fine wine, or alternatively go the convenience route? “While consumers still have to trawl through large supermarkets to purchase alcohol or have problems finding parking spaces in city and town centres, then traditional off-licences will continue to have a future,” Evans insists.

“The phenomenal response regarding the former FQR stores shows that there is still a place for well?-stocked off-licences, especially for those customer service-driven operators who can provide a quality offer tailored to their local customer base.”?A third option is to join the Bargain Booze franchise, and hundreds have: the group can afford to be fairly choosy about which retailers it allows in, such is the demand. Yet hundreds more cling to absolute independence – among them Hambleton Village Off-licence in Poulton-?Le-Fylde, Lancashire, which has been family owned for 20 years.

The shop began life as a pure drinks retailer but has gradually widened its offer.

“We do a lot of convenience lines – we simply have to nowadays,” explains owner Richard Knowles. “A bit of grocery and milk, and what have you, but the off-licence is still the main business.”?The shop is just 450sq ft but banks an impressive annual turnover of £600,000, with alcohol accounting for 45% of sales. Tobacco represents the next largest product area, followed by groceries. Margins go as high as 25% on wines below £5, and as low as 10% on some spirits.

Knowles says the shop has a reputation for sourcing drinks not available in local competitors such as Spar, and this alcohol specialism has kept customers loyal and the business profitable. Trading hours have been extended to maximise the opportunity, meaning the shop is now open from 7.30am until 10pm.

Is Knowles optimistic about the future of traditional drinks retailers? “No. As a dedicated off-licence we probably wouldn’t be here now,” he says. The electricity bill alone is £18 a day, “which is two or three hours of staff wages before you’ve done anything”.

He believes such stores will die off “unless you’re a specialist doing the single malts and premium wines and you’ve got a good reputation”.

“There will always be a good few independent specialists but you can’t just stick to run-of-the-mill merchandise and hope to survive,” he says. “Once your current crop of regular customers has died away, you’re not going to get the younger ones in. That’s what we struggle with.”?Knowles is hopeful of buying the neighbouring unit to further extend the convenience offering. He’s an advocate of the Booker retail club but has not joined a symbol group – unlike many other retailers which started out as off-licences and later decided to diversify.

Independent and proud?Rob Midgley, trading manager at northern Spar wholesaler James Hall?, has watched specialist off-licences decline. “We are seeing independents disappear. It’s quite obvious that it’s a struggling sector,” he says.

“One thing we find is that a lot of those true independents really want to stay independent. They don’t want to be part of a group. They like going to the cash and carry and doing their own wheeler-dealing. A lot of them we wouldn’t want to join our group, because their quality?, standards and aspirations for their businesses aren’t at a level that will make their businesses work in the future.”?Midgley fully expects to see a flurry of off-licence openings as the First Quench wreckage is cleared from the retail landscape.

“I don’t doubt there will be a number of those. The key to their survival is what their offering is. You’ve got to ask the question, can they compete in the three-for-£10?-style market or will they have the standards?, expertise and knowledge to work at the higher end, where the bottle spend and margins are higher but volumes are lower? “In theory the Threshers offering should have worked in the marketplace – the wines were good quality and the price points were mixed and covered most bases. But it failed.”?Buying habits die hard?Tom Fender, director of Him?, the agency which monitors specialist off-licence chains and their customers, says that “we as a nation are quite habitual – if we shopped at the local off-licence for years, we’ll carry on doing so until something dramatic happens”.

But he believes some retailers have been complacent. “We talk about the importance of being ‘local’ – local shops serving local communities – and we see how well the convenience industry has done to embrace this idea. Can we say that the off-licence industry has done anything remotely similar in totality? I’d argue not.”?Fender suggests that some off-licences delude themselves about the importance of the products they specialise in. “I think sometimes they believe they have a god-given right to survive and that customers will be queuing up at their doors – they somehow have overlooked the whole communication bit, local leafleting and so on,” he says.

Yet despite these reservations, Fender maintains that “clearly there is still an opportunity for the single site or small chain of good?-quality specialist retailers in the same way good butchers? and fishmongers survive”.

The first 18 months of the post-First Quench world will witness whether those who share this hope are right to be optimistic.

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