Interview: Tim How – Garagiste

Retailer Majestic is gearing itself up to dramatically accelerate its new store openings. Tim How, the man in the driving seat, expects to be sizing up ex-garage forecourts for the foreseeable future

It’s often those little asides that are the most telling. The type of comments that are either a deliberate leak, like an actor to his audience (but not to those on-stage) or those snippets that accidentally escape when someone drops their guard. And it was in an interview with the drinks business that Tim How, Majestic’s chief executive, made his ambitious intentions clear in a most unsensational and casual manner. “I’m looking forward to spending more of my time on property over the next few years,” he said.

What he means by this modest remark is that the successful wine retailer, which has recently posted annual profit growth for the 13th consecutive year, is planning to expand – and massively. How expects there to be 175 outlets by 2010, although he can see the potential for between 200 to 230.

Considering how Majestic has expanded from one to 129 stores since 1980, this would mean accelerating the warehouse opening rate significantly – to well over 10 each year. And with off-trade wine sales starting to stall (see p.26), one must ask, why the optimism? Is it misplaced? And if not, what’s the key to this drinks retailer’s success?

For How, “The number one strength of our business is the knowledge of our staff.”  Majestic invests a lot in training, presently sponsoring around 80 employees through the WSET diploma. “You can be a good store manager without a diploma, but with our increasing emphasis on broadening the range and selling more fine wine, those people who improve their wine knowledge are very important to us and the diploma is the quickest and best way to do that,” he says.

As for the planned “hard push on expansion” in the face of a possibly tougher economic climate, How points out that, “Given our resources, we would actually use [an economic slowdown] as an opportunity to expand, because if you take a medium-term view then I’m quite sure the wine market is a great place to be and overall wine consumption is likely to continue to keep growing.”

On top of accelerating the number of new store openings Majestic is planning to resite some existing outlets. The ideal site “must have parking,” says How, “unless it is right in the centre of London. But even our new store in Covent Garden has a couple of drop-in spaces.” Another criteria is a “main road location with good visibility” and Majestics seem to adapt well to former garage sites.

“The expansion will be funded from reinvestment – expanding leasehold properties is not very expensive,” explains How. “Keeping cost control, including shop investment, does mean we can operate on low gross margins, so we can offer better value. Wine and wine sitting on wine boxes makes a great display, so it all works very well and gives us flexibility, allowing us to bring in interesting parcels of wine without having to invest a lot in shop fittings and then be constrained in terms of what we can do with the space.”

As for freehold property, How explains that Majestic has “developed from four or five freeholds that we owned when we floated on the alternative market in 1996, to 30 that we own today. In just under 10 years we’ve actually bought 25 freeholds.” So where’s all the growth coming from? Is Majestic stealing market share from other wine retailers?
“If you look at the market there is stronger growth at £5 and above, and I would expect to see the market gently move up in price point. Within that we are quite nicely positioned.

Also, we have two strategies: one is attracting new customers to existing stores and the other is a very clearly defined map of where we want to find new stores. We know exactly those towns – and the areas within those towns – where we would like to find most of the rest of those stores.”

Internet increase
In addition to that, the internet has been a useful tool for bringing new customers to Majestic. According to How, the web accounts for just over 5.5% of Majestic’s sales, despite the fact the retailer was “relatively late” into the arena, launching its website in April 2000. The strength of Majestic’s on-line operation is, according to How, based on the fact that “We’ve got 12 weeks’ stock in each of our stores; we’ve got a van based in all of our stores; and we can deliver when a customer wants, using a Majestic member of staff. That means you can get the service proposition right to the actual door rather than being confronted by a white van man and all those other challenges attached to mail order.” How also believes that sales through the website “will continue to grow at 25% to 30% and we are going to continue to see the web taking a higher share of our business.”

No kidding
Then, of course, there’s the other aspect to Majestic’s business: the bar and restaurant customer. Corporate sales (sales to businesses including on-trade accounts) make up as much as 28% of business – a figure which is perhaps surprising considering the insistence on exclusive labels throughout much of the UK on-trade. “Providing an interesting range of wines at good price points does work and although there will be those who want to buy exclusive labels, in a way, who are they kidding?” says How. “If you are paying a substantial sum for a Pinot Grigio, whatever the label, you will be paying substantially more than you would for it in the off-trade,” he adds.

Furthermore, Majestic is attractive to the on-trade because it has “lots of stock in our stores and can offer much more frequent delivery than traditional wholesalers can. So fulfilment is very much handled by the local store.” There is, however, a separate team of 15 staff for business-to-business sales, which began as a one-man operation eight years ago.

Fine tuning
Finally, fine wine, which accounts for some 3% of Majestic’s business. Fine wine is classed as those labels over £20 a bottle, and How is “pushing hard” on these at the moment. “Fine wine is growing at a similar rate to internet sales,” he says. The opening of a temperature-controlled Fine Wine Centre in Majestic’s St John’s Wood branch in London in July 2003 marked the retailer’s first major foray into this end of the market. This took the form of an air-conditioned area behind glass.

“We learnt, from opening stores in London’s South Kensington and Mayfair, that we could retail expensive wines, up to a few hundred pounds a bottle,” explains How. “We knew the potential was there. So if we overstocked, we could move bottles into one of those two stores.” But such caution seems to have been unnecessary. The St John’s Wood Fine Wine Centre now houses 200 fine wines, all available for distribution to other Majestic outlets.

This type of store within a store is gradually being rolled out. The full 200 wines are not always installed, but a smaller air-conditioned glass box is used to house around 50 wines.

In 2006 Majestic added Cheltenham, Milton Keynes and Harrogate to the list of those stores with Fine Wine Centres, and How has earmarked around another 20 suitable stores.

Does he see any significant changes to wine retailing in the future? “There’s no question that supermarkets will dominate the trade and their share of the trade is going to continue to grow. It’s also true that there is scope to run a good specialist business. Our challenge, going back to where we started, is to retain the enthusiasm and knowledge of a smaller business as we move nearer to being a 200-store business – that’s what really exercises us, and today we’ve proven we can be successful at doing that.”

© db August 2006

Tim How: career profile
How hasn’t always been a retailer, having begun his career on the supply side, selling Polaroid cameras. Back in 1983 he switched, joining Bejam, the frozen food retailer, as marketing director and working his way up until he ran the business. Interestingly, in 1987, How approached Majestic to see if they were interested in selling. “We wanted to use our retail strengths and looked at businesses that took similar types of sites – Bejam was about car parking, shops broadly away from town centres and in reasonably affluent catchment areas, so we really liked the look of wine warehousing.” Majestic wasn’t interested, which served to fuel How’s determination to become involved in the sector. This culminated in Bejam’s purchase of Wizard Wine in 1987, a business begun a year earlier by Majestic founder Tony Mason.

“We opened some new stores until we ourselves were taken over at the beginning of 1989 by Iceland Group plc and at that point, the chairman, John Apthorp, and I left.” They went on to purchase Wizard from Iceland with Tony Mason. “I still thought there was growth potential in wine warehouses and by that time Majestic was up for sale. I didn’t buy it the first time around but did the second time, in 1991, and for a lot less than we would have done if we had bought it in 1989 – the business was not very well run between those two points.”

Thus, in 1991 Wizard purchased Majestic, and the two operations were merged under the Majestic Wine Warehouses banner in 1992. The business expanded and floated on AIM in 1996 and opened its 100th store in 2002.

Majestic: key facts

• 1980: the first Majestic opened in Wood Green, North London; managed by Tony Mason
• 2006: there are now 129 stores in UK
• Number of customers: 374,000
• Wine range: approximately 800 lines
• Fine wine section is growing 30% year on year and now accounts 5% of sales, comprising 200 wines at over £20 per bottle
• Currently rolling out smaller, air-conditioned Fine Wine Centres
• Wine parcels account for 25% of purchases, eg £800,000-worth of Burgundy
• Over a quarter of the business involves selling to other businesses, eg restaurants
• The average price of a bottle of wine has risen from £5.51 in 2005 to £5.59
• Average spend has risen from £113 in 2005 to £118. If internet sales are included, average spend is around £130
• Operating profit up by 10.7% from £12.7m in 2005 to £14m
• Total sales up 6% from £162.5m in 2005 to £172.2m. Like for like UK sales up 3.8%
• Sales for the first 11 weeks of the financial year to June 12 have been encouraging, with like for like UK sales up 8.6%
• Final dividend of 5.1p net per share, bringing the total dividend to 7p net per share, an increase of 27.3% on 2005
• Profit before exceptional gain, tax and amortisation increased by 9.8% from £13.2m in 2005 to £14.5m

Majestic’s top sellers

1. Cuvée de Richard, Blanc Vin de Pays du Comté Tolosan / Rouge Vin de Pays de l’Aude,
   France, £3.15 – 630,000 bottles
2. Robertson Winery Sauvignon Blanc, Robertson, South Africa, £4.99 – 280,000 bottles
3. Mâcon-Lugny, Louis Latour, Burgundy, France, £6.99 – 200,000 bottles

© db August 2006