Food & Drink: Will Augustus wed Victoria?: Two of our leading high-street drinks chains are set to merge. Anthony Rose reports

WHEN IT WAS suggested that Augustus Barnett might qualify for the Wine Challenge's Going Places award this year, little did we know how appropriate the suggestion was. The award would have been well-deserved for the undeniable improvement in its wine range over the past year. Now it seems the chain may be going places in a more literal sense.

Augustus Barnett is expected to announce soon that it is joining forces with Victoria Wine, to mount a challenge to the Thresher conglomerate dominating the high street. The merger would add Augustus Barnett's 543 shops to Victoria Wine's 973 (which include 141 branches of Haddows) taking the combined total to within 79 of the Thresher chain, Britain's biggest specialist drinks retailer.

Following the takeover of Peter Dominic by Thresher 18 months ago, a second major high-street merger would signal yet another nail in the coffin for that dinosaur of the high street, the traditional off-licence.

The writing has been on the wall for the species for some time now. Supermarkets have been able to increase their share of take-home drinks sales to more than 55 per cent while high-street chains are struggling at less than 40 per cent, with independents making up the rest.

Doggedly sticking to their beers and spirits is not working any more. Only 25 per cent of Augustus Barnett's sales are of wines - roughly the same proportion as Victoria Wine's. Both chains' sales are dominated by beer, cigarettes, spirits, soft drinks, sweets and crisps - areas, beer apart, where profit margins are not high.

This compares with about 70 per cent for Oddbins. Some 70 per cent of Augustus Barnett wines are sold at under pounds 3.50, as are about 60 per cent of Victoria Wine's.

It is no secret that Bass, the brewing group that owns Augustus Barnett, is close to off-loading the high- street chain it bought in 1983. This is a strategy it has been pursuing since it recognised that the chain was never going to fulfil its promise as an outlet for Bass's beers and other products. The problem for Bass was how to secure a showcase for its products and at the same time find someone prepared to take on 500-plus shops, each in need of tens of thousands of pounds-worth of investment.

At a difficult time for the drinks industry, such an investment would probably test the resources even of Allied-Lyons, the brewing giant that owns Victoria Wine. At board level, both firms have been tight-lipped, but it is thought that a joint venture will be agreed, with Victoria Wine taking on the buying and marketing for Augustus Barnett. The companies would maintain separate public faces until well into next year.

While such a deal would not rid Bass entirely of its niggling problem, it would enable it to extend distribution of its 60-odd beers throughout the Victoria Wine empire. Bass also has supply agreements with Crus et Domaines de France, whose Alexis Lichine brand specialises in French wines from different regions, as well as Otard cognac. Here, too, a deal is likely to be struck in order to maintain existing commitments.

For Allied-Lyons, in the guise of Victoria Wine, there are obvious attractions. Apart from eliminating a rival, it would be able to increase selling power for its own drinks brands, which include Carlsberg-Tetley beers, as well as the wine and spirit brands of its wholly-owned subsidiary, Hiram Walker - the fourth-largest drinks company in the world.

It seems likely that as Victoria Wine keeps an eye on the newly merged Augustus Barnett outlets, it will cherry-pick the fittest, convert them to Victoria Wine shops and knock out overlapping stores. A bigger but leaner and fitter outfit would give Victoria Wine a far better chance of challenging effectively the successful Thresher conglomerate.

Whitbread, which owns Thresher, is likely to find its own products squeezed as a result of a merger. But Whitbread has made a success of the Peter Dominic takeover. By concentrating on wine quality and creating three distinct identities for its high- street shops - Thresher, and the more up-market Wine Rack and Bottoms Up stores - it has shown that a high-street wine retailer need not go the way of all dinosaurs. Its share of more than 10 per cent of the take- home drinks market makes it bigger than either Sainsbury or Tesco, and it is still quite a bit bigger than Victoria Wine (6 per cent) and Augustus Barnett (2.6 per cent) combined.

Somewhat late in the day, both Victoria Wine and Augustus Barnett have woken up to the fact that they cannot prosper on cigarettes alone. Victoria Wine's 11 per cent increase in wine sales reflects its own work in improving the quality and range of its wines; and it has just taken on Adrian Lane, the man who so successfully turned round Tesco's wine range. He is likely to play a pivotal role in the new venture.

The likes of the privately owned Davisons and other small independents, which have so far survived the high-street bloodletting, will be watching anxiously.

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