Supermarkets used to be the bogeyman for the high street wine trade but now the growth of online services and a price squeeze is triggering new upheaval.
The decision taken by the stock market-listed owner of Majestic Wine to sell off the eponymous chain and morph into an online business has caused ructions in wine circles, with suppliers and customers worried about the future of the UK’s largest wine specialist, given the challenging high street backdrop.
The number of specialist off licences in the UK has slumped 11% over the past six years, according to property analysts the Local Data Company (LDC), with the decline expected to continue.
“The wine and spirit market has not been immune to the seismic changes taking place across the retail sector in the past few years,” says the LDC analyst James Anderson. “The rise of online has reached this sector, with subscription retailers offering new and exotic wines that are not available in local off-licences.”
The closure rate reflects the recent collapse of Oddbins, one of the UK’s last independent off-licence chains, and the break up of the troubled Conviviality business, which owned Bargain Booze and Wine Rack, last year.
Wine specialists have been hurt by rising costs, such as business rates, at a time when profit margins are squeezed by the weakness of the pound and successive duty increases. The average amount spent on a bottle of wine is at an “all-time high” of £5.84 – up 17p over the past year, according to the Wine and Spirit Trade Association (WSTA).
Miles Beale, the WSTA chief executive, says: “Wine businesses are dodging bullets from all sides. It is a very tough trading landscape.”
By January there were a total of 2,781 specialist alcohol stores in the UK compared with 3,132 in 2013. The LDC tracked 66 closures in 2018, a decline of 2%.
Wine specialists are also competing in a shrinking market as Britons drink less or switch to fashionable craft gins and beers. In 2018 the number of bottles of still and sparkling wine consumed in the UK declined by 1% and 2% respectively.
The big supermarket chains already account for 80% of the £6.6bn high street wine trade, accelerated by the rapid expansion of the German discounters Aldi and Lidl, which have forced specialists to raise their game.
Anderson said the high quality of the wine sold by discounters was “another reason” for the market disruption: “One of Aldi’s £7 bottles was named among the best wines in the world at the prestigious Decanter World Wine awards this year, giving shoppers fewer reasons to visit the specialist vendors.”
Majestic Wine bought Naked Wines four years ago for £70m but rather than merge the two businesses its chief executive, Rowan Gormley – who founded the online retailer – wants to get rid of its historic high street empire and focus on Naked’s trendy subscription model, where sales jumped nearly 15% last year.
“It’s like the tide coming in,” says Gormley of changing wine-buying habits. “Online sales [of wine] are growing and offline [physical stores] is shrinking.”
More than a quarter of Britons are already buying wine online, according to a recent report by the market research firm Mintel. It found 16% of consumers have bought from supermarket websites, 9% from specialist wine sites and 4% from other online stores.
On Thursday, Majestic confirmed a number of financial buyers – a group thought to include the US hedge fund Elliott Advisors, which owns the Waterstones and Barnes & Noble book chains – were interested in buying the 40-year-old chain, increasing the odds it will have a bright future outside the group.
“The high street has found retailing of wine very difficult for a long time,” says one industry veteran, who is adamant a specialist such as Majestic can still thrive on the high street: “If you go back several years Majestic was a great business. Those customers have not vanished overnight. It just needs focus.”
Majestic Wine’s managing director, Joshua Lincoln, said news of the sale process had prompted a deluge of emails from worried customers. The level of interest in the auction meant he felt confident the business was “here to stay” and that Majestic’s 200 stores were not being “sold off to be run down”.
He explains: “It’s a tough market and there has been some [profit] margin pressure. Brexit doesn’t help. There is a big opportunity for Majestic Wine to be an exciting presence on the high street and continue growing. The outpouring of support has been a huge vote of confidence in Majestic’s stores, our brilliant staff and our fantastic wines.”
The closures tracked by LDC reflect the plight of chain stores, with the number of independent wine stores relatively stable at about 1,900 over the past year.
Freddie Herring, sales director at Noble Green, an independent wine merchant in south-west London, says two local rivals have closed in the past year but its decision to embrace selling online had made it more resilient: “By constantly evolving and being ahead of trends you can survive and be OK.”
Although UK consumers may be drinking less of it, interest in wine has never been higher, adds Herring, as oenophiles seek out the best wines. “It’s better now than it ever has been, which is thanks in some part to [the education provided by] Majestic. Customers know more and care more.”
Timeline of trouble
2005 Unwins, the 162-year-old off-licence chain, closes down after struggling to fend off supermarkets. About 200 stores were sold to First Quench.
2009 First Quench, which owned Threshers, Wine Rack, The Local, Haddows, Bottoms Up and Victoria Wine, collapses. It had 1,200 stores and 6,300 staff.
2018 Conviviality, owner of the Bargain Booze and Wine Rack chains, goes under after investors refused to pump more cash into the stricken business, which had expanded rapidly. It was broken up, with the retail arm sold to grocery wholesaler Bestway.
2019 Oddbins collapses for a second time in less then a decade, affecting 550 workers in about 100 stores. European Food Brokers, which is owned by the multimillionaire Raj Chatha, had bought Oddbins from administrators back in 2011.