Majestic profits up 26 per cent thanks to cut in minimum purchase policy

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The Independent Online

Majestic Wine said it planned to double its programme of new store openings after announcing a 26 per cent rise in profits, driven by its decision last year to halve its required minimum purchase to six bottles.

The wine warehouse chain, which has 153 shops in the UK, said it aimed open 12 new branches this year after unveiling just six in the previous 12 months.

Steve Lewis, the chief executive, said the company had worked hard to expand its estate of stores and had been helped by the willingness of landlords to do deals. "Landlords have been a lot more flexible over the last 12 months," he added. "It's not so much on [lower] rents. They are helping with refit costs, rent-free periods and making contribution to building works."

Over the 52 weeks to 29 March, Majestic Wine's underlying pre-tax profit rose by 26 per cent to £16m. This sum was adjusted for a £5.3m write-down on the value of its French business in 2008-9. The company has three stores in northern France.

The profits were ahead of expectations and Majestic said they vindicated its decision to alter its minimum purchase policy of 12 bottles per customer per visit, which had been in place since the business was founded in 1980.

Since the minimum purchase was cut to six bottles last September, Majestic has seen its customer numbers grow by 54,000, or 13 per cent, to 472,000. It also delivered a 8.4 per cent uplift in UK like-for-like sales for 2009-10. Mr Lewis said: "The move to six bottles has had a very marked effect on business."

While the change led to a fall of 4 per cent in the average spend per transaction to £129, this was more than offset by 14.6 per cent rise in total transactions – to 1.7 million. On a like-for-like basis, the number of new Majestic customers rocketed by 18 per cent.

Mr Lewis said the company had seen strong demand for New World wines, notably from New Zealand, South Africa, Argentina and Chile.

The "real winner", he added, was Marlborough Sauvignon Blanc, which with other New Zealand brands now accounts for 18 per cent of all still wine sales at Majestic. Among red wines, Mr Lewis cited the popularity of the Malbec varieties from Argentina.

While the New World regions are registering stronger sales growth, French wines still account for 35.2 per cent of the total sold at Majestic.

The average cost of a bottle of still wine bought at Majestic rose from £6.35 to £6.56 during the year. Total sales were up 15.6 per cent to £233.2m in 2009-10, driven in part by a 22 per cent increase in sales of sparkling wine.

Mr Lewis said British customers were continuing to embrace Italian Prosecco, partly as an aperitif and as a cheaper substitute for Champagne. The chief executive added: "Prosecco has become very fashionable."

Majestic also reported a 23 per cent surge in sales of fine wines priced at £20 a bottle or more, as well-heeled customers did more entertaining at home. Mr Lewis admitted a bottle of wine costing £20 or more "may seem extravagant" but said it represented good value for money compared to the cost of dining out. Fine wines are sold at only about half of Majestic's shops, accounting for 5.1 per cent of UK sales, their recent growth in popularity has convinced the company to roll out the offer to all of its branches. Online sales rose by 19.7 per cent over the year to account for 10 per cent of UK retail sales.

Majestic raised its total dividend by 5.1 per cent to 10.3p.