Majestic must stay flexible to continue its rise

Majestic goes from strength to strength, with sales up by 10%, like-for-like sales up by more than 5% (beating inflation) and a 27% rise in profits. Such is the dynamism of the business that chief executive Steve Lewis is planning to double the number of outlets to about 330 over the next decade.

And why not, you might ask. The business model works, so make the most of it. But please Mr Lewis, the drinks trade – and wine producers in particular – need the diversity of choice Majestic offers the consumer.

Majestic is effectively the only national independent off-licence chain. The reasons for its success are well known – a quality range sensibly priced, enthusiastic and knowledgeable staff, no high street rents etc. But can the model extend to a further 150 outlets as well as extending exponentially over the internet at the same time?

No doubt Mr Lewis has done his homework and believes the demand is there to support profitable expansion and extended timescale.

But increasingly alcohol is bought as part of the weekly shop. Whether we like it or not, most consumers regard it as a commodity and shop accordingly, despite “educational” advertising campaigns from brand owners.

Some 80% of all wine bought in the off-trade is sold by the supermarkets – and much of that is bought on price rather than any other criterion.

Next time you are shopping, count the number of gondola ends promoting discounted wine. It would be fascinating to know how many repeat wine purchases are made as a result of these promotions, as well as whether – and where – consumers choose to buy again a wine that has featured in the “dine in for two for £10” deals regularly on offer.

We are unlikely to prise those figures out of Tesco and Co, but the betting is that the percentage is small. Add to that the burgeoning mail order and internet wine clubs and the slice of the wine business left to independent specialists and grocery buyer groups such as Spar and Londis is thin.

Part of Majestic’s buoyant trading is due to the decision to reduce the minimum purchase from 12 bottles to six. That trick can only be pulled once.

Nor are there pickings to be had from the failure of other retailers – most have gone. And the question has to be asked about how many customers will be attracted to a new store either from the internet or other local Majestics. Catchment area is a crucial consideration in the choice of where to site a new outlet.

But we should not be pessimistic about a successful business. Cheer the success. Average consumer spend is rising and the trade in £20+ bottles is encouraging at a time when family incomes are being squeezed.

Keep it going Mr Lewis and let’s hope others can copy your model. The wine trade needs diverse outlets. That’s why we want you to be ultra sure of your strategy.

Don’t be bound by a bullish statement made in the past. Profit from being willing to adapt to circumstances as you find them over the next decade. We’ll all drink to that.

Finance on Friday, 17.06.2011