Seven Into Three Does Go

Roger Whiteside has cut back The Thresher Group’s seven high-street brands to a much more manageable three. Will the man from Ocado deliver? asks Patrick Schmitt

“It’s such a challenging retail puzzle,” says Roger Whiteside, of the 1,850 offlicence stores he’s managing as CEO of The Thresher Group. “One a few people have wrestled with in the past,” he adds, “and a really good test of my skills.”

Amiable and intense Whiteside’s ability to run retail businesses has been honed firstly at Marks & Spencer, where he was head of food, and then at Ocado, the home delivery service, which he worked on from conception until April last year when he joined Thresher.

“I’m basically a retailer through and through,” he says explaining his latest appointment. “And I don’t think it’s that important whether you’ve got direct experience of the category itself – although I have worked with wine in the past – because the skills are applicable across the board: it’s about understanding your customer, and then motivating a team of people to build a proposition that succeeds.

“That’s what I’m setting about doing here – so there’s plenty of change.”

But why should Thresher be such a “challenging puzzle”? “Because of the long-term decline of the sector and because this is a small store environment – it’s low turnover and low margin, which are not normally two things you put together. Usually you have a high margin and low turnover or a low margin and a high turnover business.

“Most people look at Thresher and say its days are numbered, but I simply don’t accept that,” he says, before pointing out that almost 2,000 shops trading under seven different brands “is a lot of raw material to play with”.

Of course part of the problem for Whiteside is the “shift in consumer behaviour away from high-street local trading towards car-borne out-of-town shopping, which the supermarkets have benefited from”. He continues, “Scale allows them to compete beyond their origins – a pure grocery offer – into a wide expanse of retail categories, one of which is wine, beer, spirits and tobacco, and the supermarket share of this market continues to grow.”

But Whiteside is far from defeatist. As he points out, “With wine in particular there’s natural growth in the market, so although supermarkets have been increasing their share there is evidence that if you get your proposition right you can grow with the market too.”

He’s also frank about Thresher’s deficiencies. “I think the business had lost its way in its attempts to turn itself around, and I’ve set about trying to be more effective. When I came on board the strategy was to try and widen the appeal of the off-licence by introducing food alongside the alcoholic beverages. I can see the logic: the customer certainly accepts buying them together in other outlets.

“I came in to execute that plan because of my experience in food, but it became obvious during the course of the first year that, while our existing customers were happy to buy some food alongside their alcohol purchase, it was exceedingly difficult to create a compelling enough offer within the constraints of 700 square feet – which is the typical size of off-licences – to actually shift customer behaviour, so they are visiting the off-licence more frequently, which is ultimately what that model had to do.

“Just getting some of your existing customers to buy food was never going to sustain enough stock demand in fresh food to make it viable. So, after close to 18 months of pilot activity, including rolling out 80 stores within the M25, we decided that we weren’t going to support that format, the waste was too high. That meant we had to rethink what we were going to do with the Thresher brand.”

 Power of three

However, before Whiteside could decide exactly what to do with the Thresher shops he needed to clarify the focus of each retail brand in the Thresher Group. As he explains, “We were trading under seven brands, but treating them as one, and dealing with customer catchments of a widely varying type. So we segmented the business into three brands. One brand for less affluent catchment areas, where customers predominantly use us for beer and tobacco purchasing, as well as some wine, but where typically it’s less than 20% of the mix.

“The names we had like Victoria Wine or Drinks Cabin simply weren’t versatile enough. We wanted the brand to be able to stretch from core off-licence offering to microconvenience – people use these stores like corner shops.

“So we decided to use The Local, and extended where we thought there was the right customer catchment, which turned out to be 750-odd stores; and we have rebranded them all. That job’s done. A new chain has emerged in the last five months that’s bright yellow, with very keen beer, spirits, tobacco values, and, in some locations, groceries.”

Then it was decided a brand was needed for off-licences where the customer base was more affluent and it would be called Wine Rack. Some 200 stores have been identified, some of which are already called Wine Rack, others Bottom’s Up and a handful called Thresher, all of which are currently being relaunched. As Whiteside says, “The catchment areas in the offlicence business are very defined because the vast majority of sales come within a third of a mile of the store’s location.”

Then, in between, is the middle-market Thresher brand, which “has to be all things to all men, because Thresher stores are located in areas where the catchment is mixed”, says Whiteside. This means Thresher “needs to be good in wine but not as specialist as Wine Rack – the ranges don’t need to be increased in Thresher (they do slightly in Wine Rack) but the shape of the range needs to be changed to reflect the customer type.”

Trading up

So, while in Wine Rack a shift is occurring towards “better quality wines and less brand domination”, and in The Local “the customer seeks out brands, so we’ve relayed all the wine sections by brand”, in Thresher “there needs to be good brand presence and a good representation of interest wines for those looking for a bit more stimulation.

“In all cases what we must do is be the best in our local parade for the wine proposition, because in most of the parades we trade in there is a convenience retailer with a wine section. And we need to be better than that section in order to drive customer loyalty.

“At the heart of this, when we looked at customer research, what drives people to use one store over another is convenience. The next most influential factor is value for money. We had to take stock of our value for money proposition, which had deteriorated over the past few years. But we didn’t want that to mean simply cutting prices in a conventional fashion. All that does is deflate the business without shifting customer investment required,” says Whiteside.

“Most of our promotions had been multi-buy promotions; all attempting to get the customer to trade up from one bottle to two or three. And while that had been reasonably successful, it was easily matched by the supermarkets so we didn’t stand out. I’m greatly attracted to the Majestic model where you are forced to buy a case. But I don’t think you can apply that to an offlicence. So we came up with the buy two get the third free on the entire range of wine and Champagne. We piloted it in Sheffield a year ago and watched the results.

“We were sufficiently encouraged by the results that we decided to invest across the entire estate in March this year. We are seeing double-digit increases in sales because our customers who were buying one bottle are now buying two, and they like the fact it’s mix and match.

“We’re improving customer choice as well as value for per bottle equivalent, we are now cheaper in many instances than the supermarkets, and certainly cheaper than Majestic. Rather than channelling everybody into the lines that the suppliers are promoting, you are now in effect supporting every line. It gives customers a level playing field in terms of choice for the first time. They are moving up the quality level, because the further they go up in price the more they are saving. The best example of that is Champagne, which has responded most dramatically to this. “

Consumer radar

But who ends up funding the promotion? “We’ve negotiated terms with the suppliers which are annualised, so rather than negotiating every single promotion separately you negotiate all of the funding upfront. But we have also dramatically reduced our margins.”

As for the effect on brand Thresher, “suddenly people are noticing it”, reports Whiteside. “They are thinking ‘Oh yes, Threshers have got that three for two thing, I can get real value for money’. Customers can’t tell you the price of anything but they know the value of everything. They have a radar system which means they can judge value for money without being able to quote a price. They know a deal when they see one.”

Whiteside concedes that presently customers see the three for two offer as temporary, “but through time will believe it to be permanent”. At which point isn’t there a risk it will stop enticing the customer? “We are already this platform to generate excitement, not necessarily about the price, but about the wine itself, whether it’s using varietals, country of origin, new arrivals, recommendations. Now price is equated everywhere we can have themed events around country of origin and so on.”

It’s at this point that Whiteside pauses and reflects on the basis for his strategy. “People have been constantly experimenting for things to do in off-licences which will make them appealing generally. We are trying to make them more appealing for being offlicences.

“We are investing our efforts and money in the range, service and value for money. We are not ever going to get prizes for being designer led – the stores will be functional – because I think it’s range, service and value for money customers respond to most.”

CAREER-WATCH

Head of food at Marks & Spencer, then worked for four years on home-delivery start-up Ocado before joining Thresher as CEO in April 2004.

He disbanded the Thresher plus Food concept and split the Thresher Group into three clearly defined brands, from seven different names. Out went Victoria Wine, Huttons, Haddows, Bottoms Up and The Drinks Cabin. The Local (750 stores) was launched and Thresher (900 stores) and Wine Rack (200 stores) were rebranded.