FQR collapse hints at worse to come

The news that First Quench Retailing, the parent company of the Threshers, Wine Rack, Haddows and The Local off-licence chains, has collapsed comes as little surprise.

the drinks business revealed at the start of this year that a Spanish supplier had refused to trade with the group because it could not obtain credit insurance for a shipment and this was followed a few months later by the company issuing a warning about its ability to continue as a going concern.

The volume of trade rumours increased steadily and, on Wednesday, FQR issued a statement that it was examining “restructuring options” in concert with KPMG, the corporate advisor.

The current 50%-off voucher offer looked like a desperate attempt by FQR to generate cash flow to allow breathing space, but yesterday the company failed.

KPMG is now trying to find a buyer for the company in the hope of saving some of the 1,300 stores and the jobs of 6,500 staff. FQR staff will learn more about their fate today, but the administrator plans to keep the shops open to boost the chances of finding a buyer for the business.

This morning saw the announcement of the first round of redundancies, all of which came at the FQR head office at Welwyn Garden City. A statement released by the adminstrators said: "No stores have been closed immediately on appointment and there have been no redundancies of store staff but 81 redundancies have been made at head office, based in Welwyn Garden City.  Unfortunately it is likely that some store closures and further redundancies will be made." 

The prospects of finding a buyer for the business seem distant due to the fact the group has few assets as most of the outlets are rented. The background figures are hardly encouraging.

The latest figures available show that FQR lost £1.7m before tax on turnover of £687m in the year to the end of June 2008.

Since then its position had deteriorated. FQR said earlier in the week: “It is no secret that the credit crunch has made a very competitive marketplace even more challenging.”

Indeed, Wine Cellar, which operated convenience stores and the Booze Buster off-licence chain, collapsed into pre-pack administration at the start of October at a cost of more than 300 jobs, despite the widely acknowledged trend towards home consumption at the cost of the on-trade.

Nor do the prospects for independents and off-licence chains offer any hope of improvement. In its latest survey of UK consumer activity, Capital Economics, the widely respected independent forecasting house, predicted that consumer spending will fall in real terms by about 1% next year before rising by the same amount in 2011.

In other words, households will not begin to see their overall disposable income start recovering to pre-recession levels until after the 2012 London Olympics, and even then the recovery will be weak and sluggish.

Worse, however, Capital Economics predicts that total real consumer spending on alcohol and tobacco will fall by 3.5% next year and 1.5% in 2011 and then remain static until the end of 2013.

If that forecast is correct, the sector will be very hard hit for the next five years. That will hardly encourage potential buyers into the off-licence market, especially as the supermarket chains look likely to increase their dominance of the sector.

Finance on Friday, 30 October 2009