SHOPPING at Majestic Wine is a bloke thing. Customers of the chain, which floated on the alternative investment market (AIM) in 1996, love to talk and taste wine with the knowledgeable staff. They load it into the boots of their cars and drive off in a rosy haze of endorphins.
For wine, to Majestic’s affluent customers, instantly recalls the pleasure and relaxation of long languid summer meals amid the hum of cicadas under the Mediterranean sun.
So a bloke’s purchase of wine by the case from one of Majestic’s “warehouses” is not so much a random impulse buy but a regular form of retail therapy that many women derive from buying shoes, lingerie or chocolate.
The company’s 325,000 registered customers spent an average of £5.40 on a bottle of still wine while the national average was £3.98 in the year to March 31. Because Majestic, the UK’s largest wine warehouse selling direct to the customer, sells its wine only by the mixed case, each transaction averaged £107.
During the year operating cash flow swelled to an intoxicating £12.85 million and funded £4.63 million of net capital expenditure, repayment of a £4.3 million loan, tax and a 50 per cent increase in dividend, leaving dredges of deficit in net cash flow. But this year, net cash flow should soar to more than £5 million.
Advertisement
The total 16.5p payout for 2003/4 yields 2 per cent, and is 2.8 times covered. The dividend should rise and the cover fall to 2.5 per cent in the current year when pre-tax profit is forecast at £12 million against £10.7 million (£8 million in 2002/3) last year on sales that were 18 per cent higher at £148.3 million Like-for-like sales rose by 10 per cent compared with the estimated 6.1 per cent growth in the £4 billion UK market in off-trade wine.
The supermarkets, notably Tesco, Waitrose and Sainsbury’s, claim 75 per cent of the market, while specialist retailers such as Thresher, Victoria Wine, Bottom’s Up, Wine Rack, Unwins and Oddbins together with mail order operators, have the remainder.
But the multiple high street off-licences are losing market share to the supermarkets. They increasingly depend on impulse buys, while the supermarkets, are not as user friendly as Majestic when it comes to buying wine in bulk, and/or getting good advice — which is at the heart of the wine business. Majestic, with a 3 per cent market share, is thus in a sweet spot and confident that it can grow its customer base to one million by the time it operates 175 or more stores.
Each store takes about £1 million a year in sales or £30 per sq ft. New stores make money from the second year of opening, and go on to generate far higher sales growth than the group’s average for five years thereafter. Majestic is on a roll until at least 2010 assuming its store expansion goes to plan.
Tim How, Majestic’s managing director and co-founder, says: “Finding the right sites, that are not too expensive, in the right communities, and that have room for the stock is quite a challenge. We could not find more than ten each year.” Mr How owns 1 per cent of the shares, along with options, and John Apthorp, his co-founder and chairman, and his family own 41 per cent. “No one is interested in selling”, says Mr How.
Advertisement
With years of experience in sourcing interesting wine and given the entrepreneurial guts to seize special one-off deals — such as that done with the state-owned Swedish wholesaler a few years ago — Majestic’s reputation as a master vintner in the eyes — and noses — of loyal customers is secure.
Majestic’s other great resource is the constant stream of graduates and bright young visitors from the New World who come here for a couple of years and who will accept low pay in return for the opportunity to learn the wine trade.
The job at Majestic’s stores is physically demanding, and seven days a week, but the staff stay for an average of four years.
This might not be unrelated to the fact that share options are granted to all of Majestic’s store managers and staff with three years’ service. But 162 subscribed to save-as-you-earn share option schemes in 2003/4, proving that they can sniff out good shares as well as good wines.
I shall be filling my boot with Mr How’s tip for a great summer tipple of chilled white Gavi di Gavi Recolto Tardivo 2002/3, at £6.79 a bottle.
Advertisement
I am also laying down Majestic’s shares, soon to be split four for one at 875p. Since they trade on the alternative investment market, after holding them for two years, any capital gains liability would fall to 10 per cent of my highest rate.