Majestic profits lose their fizz as customers cut back on bubbly
Tuesday 11 November 2008
Pre-tax profits at Majestic Wine tumbled by more than a quarter in its first half, as corporate customers cut back on entertaining and quaffing champagne and left the wine warehouse chain with a hangover.
The dire figures from the 147-store chain came as the British Retail Consortium said that retailers endured their worst sales for three and a half years in October, putting down an ominous marker for what is expected to be a dreadful Christmas trading period.
Majestic Wine said that its pre-tax profits plummeted by 25.5 per cent to £5.6m, the retailer's worst performance since 2005, for the 26 weeks ended 29 September.
The retailer is suffering from private, corporate and on-trade customers, such as gastro pubs and restaurants, tightening their belts during the credit crunch, as well as cut-throat competition from the big supermarkets.
While Majestic's underlying sales fell by 2.1 per cent over the six-month period, they slumped further by 4.7 per cent for the five weeks from 30 September to 3 November.
In the UK, its sales of champagne fell by 6.4 per cent over the 26-week period. Steve Lewis, Majestic Wine's chief executive, said it was "particularly noticeable" that business customers had reduced their purchases of champagne. Mr Lewis said: "Business customers have not been doing as much entertaining and this is hardly surprising because they have not had much to celebrate recently." He added that a growing number of customers were opting for "good quality sparkling wine" rather than "entry-level champagne".
Majestic Wine has increased the proportion of wine ranges it sells from countries such as New Zealand, Chile and Argentina, at the expense of those from the Loire and Burgundy regions of France, as customers look for value for money.
The average spend per transaction at Majestic, which only sells wine by the case, rose to £135 from £128 over the six-month period. The average bottle of still wine purchased at Majestic climbed by 5.8 per cent to £6.19.
Total sales at Majestic Wine, which has a small operation in France and a fast-growing online business, grew by 3.4 per cent to £94.1m over the six months.
While Majestic's sales to customers rose by 2.9 per cent over the period, its sales to business customers, who are primarily small, owner-operated restaurant, gastro pubs and hotel businesses, fell by 1.6 per cent.
Separately, the British Retail Consortium has revealed that October was the worst month for retailers since April 2005, which itself was skewed by the timing of Easter. Total retail sales fell by 0.1 per cent in October, which is "extremely rare", compared with the same month a year ago, according to KPMG. Underlying retail sales fell by 2.2 per cent, as all sectors with the exception of food and drink struggled.
Tim Clifford, a retail partner at KPMG, said: "In non-food, it is going to be some of the toughest trading that has been seen in the last 20 years."
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