UK Retail Cash & Carry: Carry on branding

Piling it high and selling it cheap is for yesterday’s C&C companies. Today the smart operators tailor products to their customers’ needs, with own-brand wines offering exciting opportunities, says Andrew Catchpole

If your image of the cash and carry market is of dodgy tied-pub landlords buying in on the sly from dusty warehouses piled high with cheap booze, then it’s time to think again. Dirty Den and his ilk have largely been left behind by this increasingly sophisticated sector of the supply chain. This is a business that, among the big players at least, is fighting back against the threat of multiple grocer domination through a combination of on-line technology, finely tuned networks of nationwide storage depots and JIT (Just in Time) free delivery services, coupled with an unprecedented push to tailor products for the individual needs of a very varied and demanding customer base.

Exact figures for the number of UK cash and carry operations are hard to come by, but CRM Broker International, a leading direct marketing company with 2.4 million of the estimated 3m UK companies on its database, records 1,049 cash and carries across Britain and Northern Ireland. One difficulty in coming up with an accurate figure, and thus a total market value figure for the cash and carry trade, is that the distinction between cash and carry and wholesale is often blurred. In addition, a breakdown of the drink sales element (where relevant) is often not available or available only on a company by company basis.

A recent Mintel report on wholesaling and cash and carry in the UK reports that the number of these businesses has been in decline, largely as a result of mergers and acquisitions. The same report states that 40% of UK restaurants turn over less than £100,000 a year and 80% of all UK businesses turn over less than £250,000 a year.

It is primarily these small companies that rely on cash and carry and wholesale for their supplies, especially of food and drinks. These businesses range from corner shops, high-street restaurants, pubs, bars and clubs, to caterers and wholesaler own-brand shops such as Nisa, plus own-brand ranges/shops such as Booker’s Happy Shopper. Moreover, while drinks sales through this channel have been fairly flat, wine has been identified as a key area for improvement to drive renewed growth.

Supply and demand
The drinks business spoke with Pernod Ricard to discover the importance of the cash and carry market to this major drinks supplier. It accounts for some 22% of the company’s business. Richard Jones, wholesale cash and carry channel director, confirms that the market for independent retailers is tough due to the high-street onslaught of the multiple grocers. But he says suppliers such as Pernod Ricard are working closely with cash and carry and wholesalers to deliver tailor-made solutions, often centred around the convenience aspect of the final customer outlets.

The point Jones stresses is that the independent retailers are unable to compete with the multiple grocers on price, so must
sell on a point of difference. Historically, a “push” strategy of simply filling warehouses high with cheap booze was typical. But today it simply doesn’t work. The customer base of a cash and carry may typically include publicans, other on-trade retailers such as restaurants and corner shops, and as such a “pull” or proactive approach is needed to satisfy customer requirements. Identifying the individual customer requirements of each sector and then developing brands, packaging, merchandising and pricing that are right for each of these sectors is key in this tough market.

Altered images
In many ways Landmark presents a good insight into the changing face of UK cash and carry. This Milton Keynes-based company rebranded itself in November 2005, changing its name from Landmark Cash & Carry to Landmark Wholesale, to “better represent its 29 members”. Spokesperson, Emma Sadler, explains, “There has been a general shift from cash and carry to delivered wholesale across the market and this name change reflects that.” Less dusty discount stores and more proactive suppliers is the message and in many cases walk-in cash and carry and delivered wholesale co-exist.

A sign of this proactive approach is the Landmark’s Hot House Scheme, billed as offering independent advice to off-trade retailers, which includes a complete or part-package covering everything from store refits and range rationalisation to advice on merchandising, pricing, technology and so on. This, coupled with the industry-wide supplier-backed initiative Take Home Blueprint scheme (www.takehomeblueprint.co.uk) – in which independent retailers are offered the benefit of advice from suppliers on creating added value for the drinks they sell (pop beer into a fridge is one simple recommendation; supermarkets rarely do) – are increasingly successful initiatives aimed at improving the odds in the harsh battle for survival with the multiples. Promoting points of difference and convenience are the key message suppliers push through these programmes.

Independent advice

“We are looking to help independent retailers, our customers, achieve a competitive edge over the supermarkets and drinks are very much an area where they can compete,” says Sadler. “We have a central buying team at Landmark and our members also have their own buying teams all working with suppliers to secure deals to rival the supermarkets. But when companies like Tesco strip margins out, independents have to compete on offering a point of difference or greater convenience which is where drinks, and especially wine, can play an important role in increasing sales.”

Landmark’s members, whether delivered wholesalers or cash and carry operations, serve some 122,000 retail, catering and foodservice customers between them and include companies such as the North and Midlands-based Parfetts Cash & Carry and on-trade specialist L&F Jones. Landmark, which was created three decades ago to centralise trading and marketing operations on behalf of independent cash and carry and wholesale companies, now has a combined yearly turnover of £1.8 billion. The company has around 200 suppliers including major drinks suppliers such as Diageo and InBev.

Category growth
On the drinks front, Steve Mayes, trading controller for wines, spirits and cider, reveals that Landmark has driven a 16% year-on-year increase in the value of its wine sales against a fairly flat 2% growth for the drinks trade as a whole, and a whopping 40% increase in cider sales, driven partly by the demise of RTDs and the introduction of ice variants. “Wine is an area where a huge amount of catch-up with the multiples can be done through education and support, and this requires collaboration between suppliers and wholesalers and independent retailers,” says Mayes. “The dynamics are totally different from the multiple market,” he continues. “One-third of the wines through this channel are Californian, with brand Australia playing catch-up and a need to underpin the Old World which is in a pretty sorry state.” Mayes points out that the individuality and informality of the shopping experience at an independent gives great scope for personal service and hand-selling. He admits, though, that most small retailers have a long way to go to capitalise on this potential.

The core of Landmark’s own-label Vintners Collection sits at 31 wines from around the globe and the company has introduced the first five of these – single varietals such as white Zinfandel, Merlot and Chardonnay – in 25cl bottles which it has identified as an area for major potential growth. In addition to this Landmark offers its members other own-brand labels such as the Prince Consort range of spirits, the widely distributed Scandia range of lager, plus the Viborg and Joseph Jones premium lagers and ales.

Branding opportunities
Significantly, big players such as Booker and Bestway have also been expanding their branded wine ranges to further tap into a market worth an estimated £3bn a year. Unlike the market for spirits, beers and soft drinks, which Pernod Ricard confirms is flat in the cash and carry and wholesale sector, the growing market for wine presents a major sales opportunity for these companies. And it is an opportunity cash and carry and wholesale companies appear to have woken up to. As with spirits and beers, own-brand wine appears to have been identified as the best way to compete with the discounted offerings of supermarkets and other multiples.

Bestway, which accounts for 17% of the UK cash and carry market, provides an example of the investment going on. In March this year Andrea Hargrave MW, wine consultant to Bestway, unveiled a new look for the company’s five Cellar Estate wines and announced that these were to form the core of an 85-strong own-brand wine range by the end of this year. “Our strategy is to present easy-to-drink quality wines in an uncomplicated manner,” she says. All wines will carry tasting notes and food pairing suggestions on the back label.

Bestway’s managing director, Younus Sheikh, adds, “We have spent a lot of time on our Cellar Estate wines improving this own-label offering and I would like to think that we can increase our sales by 50% in the first year.” He has backed this ambitious target with a spend of £250,000 on researching and developing the Cellar Estates range – this against a current sales figure for wines of approximately £100,000 for the catering and retail market.

While this figure is small fry against a multi-million pound total for all drinks sales and overall £1.35bn turnover of this company, the salient point is that with £42.3m pre-tax profits to July 2005 (up 25% year-on-year) and with another good year predicted, Bestway can afford to chase far greater wine sales. And the combined power of the big cash and carry companies chasing potential profits from wine could have a significant effect on the way big brands and other own-label wines are channelled into the market.

Bespoke products
Just as the multiple grocers began chasing the wine market two decades ago, bringing MWs onto their buying teams and proactively working with producers to deliver tailored products, so too have cash and carry and wholesale operators begun to realise the benefit of tailoring product to each of their varied customer groups. It may be too little too late as every high street fills up with Metro, Local and a plethora of other neighbourhood off-shoot multiple grocer convenience stores, but companies such as Pernod Ricard, Diageo and InBev are working hard with the cash and carry and wholesale sector to ensure this doesn’t completely destroy the independent retail sector.

As one big player among the major drinks suppliers recently told me, “We wouldn’t want to put all our eggs in one basket, and certainly not if that basket was owned by the multiple grocers. We would be at their mercy. So it is important for us that the independent retail sector continues to fight back.” And, let’s be honest, with so much that could be improved in drinks retailing, both among off- and on-trade independents, there is a lot of scope for improvement and thus fighting back against the multiples.

© db August 2006