Industry examines impact of FQR failings

It’s over one week since First Quench Retail’s collapse and the trade is still digesting the news. While suppliers wrestle with administrators the drinks industry is asking three key questions: Why did it happen? How great is the impact? And what is the future?

Although the recession has affected the owner of the Thresher, Wine Rack and The Local high-street off-licence brands there is no doubt its troubles started before the economic downturn began.

In particular, Threshers has failed to find a clear point of difference in a highly competitive sector and the trade has witnessed a couple of flawed strategies to create consumer loyalty.

First of these was the “Threshers plus food” concept, where snacks were sold alongside alcoholic drinks. This was rolled out to 80 stores within the M25, effectively turning the off-licence chain into a mini convenience store. However, it was phased out in 2005 after 18 months of pilot activity.

Next came a novel price promotional offer: three bottles for the price of two on all wines and Champagnes. It was clearly an attempt to claw back custom from the supermarkets, and at the time – mid 2005 – it proved effective, but few would have expected it to remain the sole pricing mechanic four years later.

As Andrew Hawes, managing director of Mentzendorff, a supplier to FQR, commented: “Ultimately there weren’t enough reasons for the consumer to make the effort to visit a Thresher store when in most cases a convenience multiple alternative was available that catered for so many of their needs.”

In fact, Jonathan Butt, speaking with the drinks business in early July this year about his plans to leave the troubled multiple specialist retailer where he was head of global sourcing, described the Thresher brand as a “problem child”.

“It’s hard to fight the competition without a clear point of difference – maybe it needs to relook at its strategy,” he commented, diplomatically.

Even Wine Rack, after its recognisable bright blue refit and revamped range, has been criticised for failing to offer services such as an online sales arm.

“Non-retailers running a retail business never works,” stressed Greg Wilkins, director of UK importer Brand Phoenix, referring to venture capitalist owners Vision Capital.

Interestingly, Wilkins stopped supplying FQR this summer. “We pulled out because we were seeing less and less evidence of real retailing going on in the stores,” he said.

Explaining further he added, “When three for two was introduced Thresher needed something and it was compelling, but only maybe for a year or a year and a half. But no-one at FQR seems to have asked what’s next? The management has been too focused on the likes of logistics and administration, too many were looking at the back office but not the front end, which is the lifeblood of the business.”

While the reason for FQR’s failure is open for debate, the retailer’s creditors are more interested in minimising their losses than questioning the management strategy. And it seems some of FQR’s larger suppliers are potentially facing losses of high six figure sums, and even seven figures have been rumoured.

However, hope remains. “Just because the business has gone into administration doesn’t mean we are not going to get paid,” said Matthew Dickinson, commercial director at Thierry’s, who described FQR as “a relatively sizeable customer”.

Although there is some surprise at certain UK importers’ decision to offer credit to a retailer well known to be experiencing difficulties, Hawes at Mentzendorff explained: “We have continued to support FQR and there has been good reason to do so, as, until the very last minute, Vision Capital (who are clearly a serious business) have demonstrated a strong commitment to FQR and we were getting paid pretty much ‘on the nail’.”

Mentzendorff, along with other major suppliers to FQR, are obviously working closely with administrator KPMG with regard to any stocks in the retailing business.

However, the implications of the FQR collapse are not confined to those supplying the company. “This is a key moment in the history of the UK wine trade, effectively signalling the end of mass market alcohol-only retailing on the high street,” stated Hawes.

Nevertheless, this does not mark the end of specialist wine retailing. Dickinson for example cited “the strength of the independent sector” – places he described as “charging respectable prices and giving customers a great level of service and products of interest.”

Similarly, Hawes pointed out that it is “the independent specialist and truly differentiated multiple retailers such as Oddbins and Majestic that are best placed to coexist with the major grocers.”

As for a buyer for FQR, although speculation has suggested another venture capitalist may be interested in the business, Wilkins said this was unlikely. “I suspect it will be broken up and will be acquired in pieces. I can’t see anyone sweeping in and acquiring the whole thing because they will be faced with same pressures that the current Threshers management team have.”

Concluding, Hawes said he believed Wine Rack has the strongest future among FQR’s range of retail brands, which include – as well as Threshers and The Local – Victoria Wine, Bottom’s Up, and Haddows in Scotland.

“From the wreckage of the total FQR estate Wine Rack could be well placed to emerge as a profitable operation with new owners and I would expect there to be much interest in this particular part of the business,” he said.

Patrick Schmitt, 09.11.2009

Read more:

Administrators slash 1,738 FQR jobs

FQR suppliers await their fate

FQR collapse hints at worse to come