Wine world waits on Oddbins

Oddbins is set to outline the results of its strategic review today, with the wine industry on tenterhooks as it waits to discover the fate of the UK off-licence chain.

The firm’s struggles echo those encountered by others in the independent retail sector which have fallen by the wayside in recent years amid overpowering competition from the supermarkets. First Quench Retailing, the owner of Thresher’s, collapsed in 2009 and the Unwins chain bit the dust in 2005. Oddbins itself has been eroded over the past few years too, seeing its number of stores drop to 128 from 250 over the past decade, and that was before the announcement of a further 39 store closures made earlier this week.

Today’s announcement, which is almost certain to contain yet more bad news, will be the latest in a string of blows to hit the independent wine trade. The fact that three quarters of UK wine sales now come in the supermarket sector tells its own story, yet Oddbins has recently claimed that it has the highest average consumer spend on a bottle of wine – around £8 – of any UK retailer. In the face of such margins, the fact the chain is struggling so badly is even more worrying and, perhaps, damning from a management perspective.

Aside from the human cost – the drinks business understands some store workers were given as little as six hours notice that they were losing their jobs – the knock-on effect of a major retailer collapsing can have catastrophic consequences right the way down the supply chain.

Suppliers are currently not able to secure credit insurance to supply the chain and it is known that some have already complained about late payments. Oddbins’ most recent accounts show it made a £4.6 million loss over the year. Though this was an improvemnent on the previous year’s losses of £6.2m, there is a widespread belief that the company cannot return to profitable trading in its current form.

If the company enters into a creditors’ voluntary arrangement, which many expect to be the most likely course of action, suppliers – who already face difficulties turning a profit in the notoriously difficult UK market – will either have to accept reduced settlements for their products for a set period of time or move to wind-up the company. There is still a chance, of course, that managing director Simon Baile could opt to place the company into voluntary liquidation.

On top of its difficulties in making repayments to suppliers, Oddbins has also had to contend with ongoing legal costs to fund its long-running battle with the chain’s former owner Castel, though Baile has not disclosed what exactly the subject of the legal dispute might be.

Once the dust settles on today’s announcement, speculation over who will buy the stores Oddbins is getting rid of will head the agenda. Wine Rack has already ruled itself out of the running, but some smaller regional operators might be tempted to pick up one or two stores in their local area if they become available.

The full statement from Oddbins and a list of the stores set to close will be published on the drinks business website later today.

Alan Lodge, 11.03.2011