London to get smaller format Majestics as Gormley tests ways to get chain back on track
New Majestic Wine boss Rowan Gormley has spelled out his vision for the future of the company in a bid to return the company to profit growth.
He told Harpers.co.uk that he would cut back the store’s new opening programme, trial smaller format stores in London and tackle a misconception among non-Majestic customers that it was solely a trade-facing wholesale business.
Gormley was speaking as Majestic announced that pre-tax profits were down 22.6% at £18.4 million in the year to March 30.
The wine warehouse group saw revenue increase by 2.3%, to £284.5 million, and like-for-like UK retail stores increase 1.9%, but gross profit margin was down slightly and distribution costs rose 5.7% as the result of opening a new distribution centre.
Administrative costs were up by almost a third, partly because of the impact of acquisition costs.
The number of active customers who made purchases during the year rose 5.4% but average spend was unchanged at £129. Average bottle price was up a touch from £7.94 to £8.
Gormley said: “Last year’s figures are a function of the business over the last five years and the focus should be on what the business could look like in the future.
“I think investors want to see the business returned to growth and they’re more interested in the medium-term than last year’s figures.”
Gormley said he would aim to limit new store openings to 20-30 locations “that can deliver a good return on investment”, a scaling back of the group‘s previous plans. He will aim for an estate of between 225 and 250 stores, a downward revision from previous chief executive Steve Lewis’ target of 330.
New stores openings in 2014/15 were down to seven from 12 in the previous year, and well short of the 16 a year specified by Lewis in 2012.
Gormley added: “To get to 300 means you have to open a lot of smaller stores and that makes it harder to get a return on the investment.”
Gormley said it was “too early to say” whether the planned smaller format for London would be Oddbins-sized high street shops or a reduced size of the current warehouse formula.
“In London, sites of the size of existing Majestics are hard to source,” he added.
Elsewhere, any new sites will look to the existing Majestic format of a warehouse space with ample parking. “The format’s been very successful,” said Gormley.
Majestic has already begun experimenting with single bottle sales – instead of the six-bottle minimum order – at six sites.
“We’ve spent a lot of time talking to potential new customers and one of the things some of them tell us is that they didn’t know Majestic sold to the public,” he said.
“The six-bottle minimum is one potential barrier to purchase and the discount structure is confusing.
“We don’t know what the answer is but we know how to find out the answer, and that’s by trying out a number of things until we find what works.”
More staff training and a review of pay will aim to improve retention and motivate store staff.
Gormley said: “Turnover [of staff] has been going up and some stores have been under-staffed at key times. I want to give them more rounded training and remuneration which better reflects the performance of the business.”
He said he hoped the slimmed down store opening programme would see staff spread less thinly and help customer service levels. Staff resources devoted to commercial sales will be more appropriately scaled to the level of business at individual store locations.
Gormley gave his backing to the Lay & Wheeler fine wine division, despite it making a loss of £100,000 over the year, against a profit of £1 million in the year before.
“It’s an important part of the proposition,” he added. “There is a place for Lay & Wheeler and I’ll be looking at it over the next six months to work out exactly what that is.”