Remember the date. For anyone who works in the booze trade, not least those of you who are employed by First Quench Retailing, October 29th 2009 could turn out to be one of those “where were you when the heard the news?” moments. The revelation that the company had gone into administration came as a shock, even for those of us who suspected how badly it was doing. For an off-licence business to pull the plug two months before Christmas, things must be truly dire.
It is entirely possible that administrators KPMG, who claim to be “in the process of stabilising the business whilst a marketing campaign for the sale of the business and assets as a going concern are being undertaken” will find one or more buyers for parts of First Quench (Threshers, Wine Rack, The Local and Haddows) but I can’t see anyone purchasing all 1300 stores and saving the jobs of 6,500 employees.
Let’s not deceive ourselves here: the demise of First Quench is a catastrophe for the off-licence sector. In July this year, I predicted in this column that Threshers would not “continue in its current incarnation” and asked if the high street off-licence chain was “staggering towards is final resting place”? That may be an exaggeration, but last week it took a huge step towards oblivion.
I can see a future for the 280-odd Wine Racks (plus a further 100 or so Threshers that are in good locations) but what of the other 900 stores? Who would want them in the current economic climate? It may be true that half of the UK population lives within ten minutes’ walk of a First Quench store, but for how much longer?
What went wrong? Lack of leadership by Vision Capital seems to be a large part of the answer, especially in the latter part of its ownership. Insiders say that responsibility for selecting what went into the stores was taken away from the managers as stock holding and allocation became increasingly centralised.
This meant that stores were often left short of wine and other products. This, in turn, undermined First Quench’s principal sales tool — three for two — as many branches didn’t have three bottles of the same wine, let alone six. “You can’t sell stock that’s sitting in a warehouse,” one Wine Rack manager told me. “What’s the point of keeping it there if the business has already paid for it? ”
Until November 2008, Wine Rack was effectively run as a separate business within First Quench, but it has been subject to the same stock restrictions since then, hampering the one successful part of the company. Jonathan Butt, formerly head of global sourcing for Wine Rack, who left in June this year, believes “under the right owners, Wine Rack could survive and even prosper. The format is right.”
That may be true, but it doesn’t change my belief that there is only room for one nationwide high street wine retailer in the UK. I’d exclude Majestic from this, as it is a different type of operation, with stores on the edge of towns and cities that don’t pay the same rents and business rates. Following the demise of Peter Dominic, Bottoms Up, Victoria Wine, Unwins, Augustus Barnett and (with the exception of one brewery store) Fullers over the last 20 years we are now left with two and a half players: Oddbins, Nicolas and a limping First Quench, still trading but only just.
So who will survive? Maybe an Oddbins/Wine Rack/Nicolas merger would work, but who would have the money to pay for it? Come back, Castel, all is forgiven? Let’s face it, the French couldn’t make a bigger hash of UK retailing than it did with Oddbins last time, or continues to do with Nicolas. And it’s loaded.
No one has mentioned how much the business might be worth (if you’ve got a few million to spare, give Michael Maccallum a call at KPMG). Nor is it clear how suppliers will fare, or whether some of them might be dragged into the abyss alongside First Quench. But there are few real assets and a lot of redundancy cheques to pay. I can’t see another venture capital company stepping into the breach either. In fact, I think KPMG’s hope that “a sale can be achieved within a short lifetime” is highly questionable. I predict that no one will touch First Quench before 2010.
The one company that could benefit from all this is Oddbins, even if it doesn’t buy any of the shops. The business is slowly being turned round, albeit with a loss of £6.25m last year, and has finally cleared the backlog of stock from Castel days. It has also managed to achieve an average bottle price of £7.67 in a recession. If most or all of First Quench’s shops disappear, people who want to buy decent wine in the high street will have nowhere else to go. For now, at least.
Originally published in Off Licence News