The UK drinks industry should brace itself for more consolidations, mergers and failures in 2013, the former managing director of collapsed drinks company Waverley TBS has said.
‘The message is clear’: more consolidation, mergers, failures on the way
Speaking exclusively to Decanter.com, corporate consultant Steve Benger, who was in charge at Waverley as it went bankrupt last year, said the same combination of circumstances that bought the company down would apply to many other companies in the UK.
Waverley TBS, a drinks distributor with a £300m turnover, went into administration in October 2012 with the loss of 685 jobs.
There were three main elements to Waverley’s failure, Benger said: a tightening of credits by the larger creditors, margins being driven down due to overcapacity in the market, and the failure of the confidential invoice discounting facility (CID) – a system widely used in business whereby invoices are sold to the bank before they are paid.
Added to that ‘triple whammy’ was the disappointing summer, which meant they were 10% down over the summer trading period.
All of these conditions could affect any other drinks company, he said. Moreover, ‘big players’ such as Booker and Brakes Group are looking to move into beers, wines and spirits, territory previously dominated by drinks companies.
‘Booker are extending their footprint as we speak. They carry about 1000 wines and are looking to double their operation. Their aim is to leverage chilled and frozen and get into ambient, and as they scale up they take market share from everybody else.’
National food supply chain Brakes will similarly ‘scale up into drinks’, Benger said.
Such large companies could offer ‘at least the same prices’ as the wine companies and would be attractive to on-trade operations looking for ‘composite suppliers’ of everything from wine and soft drinks to cold meats.
When you factor in Coors and Carlsberg, both of which are ‘aggressively’ chasing the wholesale market, and C&C group, owners of Magners cider, which bought the Waverley brand portfolio, you have a situation where ‘there will be fallout at regional level, and to survive in the national space consolidation must happen.’
Benger used the example of Morecambe Bay Wines and Spirits, a 90-employee distributor in the northwest of Britain, which in January only managed to continue trading after an undisclosed injection of cash from textiles-to-drinks conglomerate the Narang Group.
‘The message in there is clear’, Benger said. ‘There will be more of this sort of consolidation.’ The most vulnerable companies would be £5m-£50m turnover wine companies specialising in the on-trade.
At distributor Bibendum, managing director Michael Saunders agreed. ‘There is oversupply and not enough available business. Last year [with the failures of Stratfords, Waverley, D&D Wines and others] was when the 2008 recession started to show. There is no reason the economy is going to get any better in 2013.’
Benger said the failure of Waverley would have ‘given some of players a short-term fillip but that’s not going to last much longer. The market is declining by 3-4% at gross level, and the wine sector is declining 6-7%, and you have big players coming in that are going to make it even tougher.’
Written by Adam Lechmere