Majestic Wines: Tim How
Tim How explains how unwavering focus on the needs of Majestic Wine’s customers has been the key to producing vintage profits – and keeping Tesco on its toes
Tim How is adamant Majestic won’t do any of the following: launch any high street stores; sell by any denomination smaller than a case of 12; start selling sub-£3 a bottle budget wine; launch its own label.
And why should it? The AIM-listed wine warehouse recently announced its 13th consecutive annual rise in turnover of 9.6% to £162.5m with profi ts up 2.9% to £13.2m and is stepping up the pace to further expand its 123 UK stores. What’s more, it’s doing it the Majestic way.
Unlike most businesses that switch direction and constantly reassess the map to reach their desired destination, the Majestic way was carefully plotted some 14 and a half years ago – and hasn’t been veered from since. So much so, there’s not a sniff of arrogance in How’s claim that even the scale of Majestic’s success is of little surprise – on the contrary, it’s exactly what was planned for.
“We could clearly see 130 stores and with hindsight we’ve been proved right,” he says. “We knew it was a business with a lot of growth potential that we could fl oat within fi ve years – and share options were granted very early on.”
Again, unlike traditional market innovations, Majestic’s success hasn’t been down to seizing on a gap in the market. Instead, How insists he and his codirectors simply had total belief in their proposition and that the market would follow. “We had to create a gap,” he says, “as there were plenty of places you could buy wine. We were clear there was an opportunity for a very differentiated business, though. We were sure, but whether there was a need, who knows?”
Fight for control
While its rise has been charted with precision, Majestic’s incarnation was somewhat primitive. Started in 1980 by Giles Clarke and Esmé Johnstone it grew organically from its fi rst wine warehouse in Wood Green, North London to have 15 stores by 1985. The manager of its fi rst store and later MD, Tony Mason, left to start his own company Wizard Wine in 1986 which was bought a year later by frozen food retailer Bejam, owned by John Apthorp and run by How. When Iceland acquired Bejam in 1987, Apthorp, How and Mason purchased Wizard. The vision among the three, How admits, was always to acquire Majestic and merge it with Wizard – however, it took two attempts and some quite cynical business tactics to land their target.
“We made the initial attempt in 1989,” says How “We could see we weren’t going to get it so we had a vested interest in ensuring the people that did get it paid far too much so we successfully bidded up and they – Wharfside Wine, backed by Summit and fi nanced by Kleinwort Benson – did pay too much and took on a huge debt. We continued to develop Wizard but frankly we always had an eye on acquiring Majestic later so quite a bit of my time was spent ensuring we were well positioned and talking to the people who had the infl uence, which was principally Kleinwart Benson, as they had the debt, while also opening stores against Majestic.”
When Majestic finally succumbed, Wizard stepped in and secured a deal whereby Kleinwort Benson wrote off a “substantial slice” of the company’s debt in the interests of creditors and staff. “I think it only got 1p for every thousand shares so there was Tim How no equity value left in the business,” recalls How.
What the triumvirate inherited wasn’t ideal – poor accounting had made the bottom line hard to appraise – and the economic climate at the time was tough, but there were enough positive assets to convince How that a turnaround was more than possible. “There were some great staff; some very loyal customers; great systems and a nucleus of strong stores, particularly in the South East,” recalls How.
By the time the companies were integrated under the name of Majestic at the end of 1992, there were 36 stores. With Apthorp taking the role of chairman, How MD and Mason, trading director, they set about restoring the founding principles of the company – selling more than 12 bottles from convenient but non-traditional prime retail locations with good customer service – and building on them.
The business plan isn’t just dependent of quantitative sales, but also a higher proportion of fi ne wine sales. The average cost per bottle sold by Majestic is £5.58 and in the last year it has seen a 50% rise in the number of £20-and-over bottles sold – that’s in contrast to the core focus of arguably Majestic’s key competitor, the supermarkets, where the average bottle sells at 40% less.
Competing with the supermarkets
“Clearly supermarkets have the dominant slice of the wine market, unsurprisingly led by Tesco,” says How, “However, while they will typically have a bigger breadth of lines at the lower price points, our range will visibly broaden from the supermarket at fi ve pounds and above. And if you want to buy wines in quantity in supermarkets, it’s actually quite diffi – cult whereas we will always have several cases.”
The economics of Majestic’s cost structure means, unlike the off-licences and almost all other food and drink resellers, it can also compete with the supermarkets on prices without sacrifi cing its own margins – indeed it often undercuts them. Majestic’s buying practices often allows it to offer discounts that other sellers, including supermarkets, can’t match, such as the recent unprecedented special on 1997 Louis Roederer Cristal at £120 bottle (it’s usually £150).
“We don’t have the buying power of supermarkets but nonetheless we are substantial buyers of wine at £5 and above,” says How. “We’re shipping containers full of wine and that is the economic quantity to ship – so we’re at no disadvantage. We also like to work direct with smaller growers and succeed in buying interesting parcels of wine.”
The parcels – one-off wines either purchased from small growers or from excess stock of other sellers – have become a key aspect of the Majestic offering providing what How describes as a ‘novelty’ experience for the customer and the notion of a shared bargain. The parcels are also used to demonstrate the fi nal key Majestic differentiator: customer interaction.
Looking after the individual
For How, Majestic’s efforts to talk to, tempt, inspire and educate customers through in-store tastings, wine holidays, helplines, magazines, its website and highly qualifi ed staff are immense. “It’s fundamental to the proposition and fl ies in the face of some very strong selfservice competition from the supermarkets,” he says. “My personal view is you get the best out of Majestic by getting to know the staff in your store – we try very hard to make buying from us a pleasurable experience.”
These aren’t just generic ‘our customer service and staff are great’ claims, either. Majestic ploughs thousands into educating staff and has become a stalwart in the Times 100 Best Companies To Work For. All its store staff are graduates working their way up to management while securing qualifi cations from the Wine and Spirit Education Trust on weekly college day release. They’re taken on trips to vineyards around the world and are encouraged to taste all new wines. “Wine runs through the veins of the business and I think it’d be diffi cult to fi t in if you didn’t wish to learn about wine.”
Majestic’s customer focus is as scientific as it is human. It has a database of 375,000 active customers that shopped in the last year, and carefully monitors buying patterns. “We have a core range of about 450 we look at closely twice a year to make sure we have wines at the right prices and that refl ect increasing consumer demand for, for instance, New World wines or Sauvignons.”
While Majestic’s growth has come by staying true to its principles, its expansion hasn’t been a purely organic store roll-out. In 2001 it bought Calais-based UK booze cruise destination Cellars de Calais for £7m and rebranded it Wine and Beer World. For How it was a common-sense acquisition not a major diversifi cation. “In terms of the customer it was the same principle; people will buy in large quantities or wouldn’t bother going.” It strengthened the company’s buying power and also shut-off a potential route of competition for Majestic. “We saw a huge number of sales developing in France and a lot of our customers going across to take advantage of duty savings – so it dovetailed nicely into our business.”
Wine and Beer World makes up 15% of Majestic’s turnover, but How says increased ferry prices means the market isn’t favourable for growth and the company is very happy with the two units it has.
Of more interest to How is expanding Majestic’s temperature-controlled Fine Wine Centres for its more exclusive ranges and its two other less consumerfacing ventures. En Premiere is a service offering wealthier customers the chance to buy wine before it’s bottled. And making up an impressive quarter of its turnover last year is the company’s division supplying wine to restaurants and catering fi rms. It has 15 sales staff who secure business and consult on wine lists etc. before fulfi lling the order becomes the responsibility of the client’s local Majestic store.
Local and national logistics
It’s an example of how Majestic’s slickly oiled logistics – particularly its ability to hold large amounts of stock on a local level – offers the company further opportunities for growth. “We ship it in through our depot in Watford where we have the capacity to hold 25,000 sq. ft. of stock, which is enough to run 160-odd stores, but we push it in and out very quickly. The stores are where stock is kept.”
Majestic’s online orders are also dispatched seven days a week from, and managed by, local stores, ensuring the company’s web service adds few additional costs as well as the opportunity for the customer to develop a local relationship with their store in the future if they wish. How expects further web penetration over the next fi ve years, growing from 5.5% of all orders to 10%, but doesn’t see any specific focus on it as a sales line other than the company’s “responsibility to offer an excellent web service”.
How is more focused on extending the number of Majestic stores, which he points out, will also improve the company’s web service. He believes there is room for 200 in the UK, with eight more to come this year.
How’s clarity of vision and ability to create such a well-organised and ‘differentiated’ business owes much, he admits, to the MBA he gained from London Business School in 1979. “It defi nitely helped me become the chief executive I am,” says How, who tellingly prefers to describe himself by his job title rather than the more ambiguous moniker of entrepreneur. “My background was in distribution and packaging and the MBA opened my eyes to broader aspects of business in terms of strategy and marketing. It gave me quite a lot of confi dence.”
It was arguably this confi dence that convinced How it was a “logical” step to fl oat Majestic in 1996 and helped him make the seamless transition to public life. “It wasn’t hugely important fi nancially, although we raised £2m for freehold investment, as we’re a cashgenerative business, but we decided building presence was the way to go and that we’d achieve that as a lot of our customers read the fi nancial press.”
While he says there’s certainly no intention to de-list, How says the company may have opted for a different approach in today’s investment climate. Also the chairman of venture capital trust Framlington PLC, How says: “People have developed private equity that is very successful now, and it’s very different to how it was 10 years ago.”
Focus and discipline
The company has successfully ridden the potentially disruptive retirements of Apthorp, who has been replaced by former Hamley’s chief Simon Burke and Mason, who has been succeeded by Apthorp’s son Justin. How reports the transition has been a smooth one and its two-thirds new management (although Burke had been a non-exec for fi ve years previously) remains in line with his demands for focused growth – and certainly no departures into the unknown.
“Would we be interested in owning production? No. We want to remain resellers. Do we want to sell wines under the Majestic name? No. We’re much keener to have more fl exibility, to trade and work with individual producers. The key for us is to focus on what we do better than anyone else while maintaining those differentiators.” No doubt Majestic’s contented shareholders will drink to that.
As How insists, you’ll never see a Majestic store on a high street – but what’s not prime for the big off-licence stores, is very much prime for Majestic. It’s followed the likes of Pizza Express in reinvigorating quirky derelict buildings such as cinemas, water pumping stations and car garages – but for Majestic there’s a more practical explanation than cleverly reshaping the urban skyline.
The truth is, Majestic cares very little what its stores used to be – more that they meet its strict criteria. “All of them are on main roads preferably on a location between where more affl uent people work and live, with good awareness and visibility,” says How. “There must be room for car parking, 800 wines and 11-12 weeks of stock – around 3-3,500 sq feet.”
How says Majestic customers don’t want them in the city centres: they must be easy to get to and provide parking space. It’s not just an issue of convenience: there are key business benefi ts too. How says the average cost of rent for a Majestic store is approximately £15 per sq ft so around £45-50,000 a year in rent – a fraction of the cost of much smaller high street units.
Quality and quantity
The location of Majestic’s stores makes further sense when you examine its customers’ average spend of £117. While it does offer free delivery, How says most customers prefer to come to the stores – and with a minimum of 12 bottles purchased, parking is necessary. “We set up to be a destination outlet,” says How. “We’re not a ‘stop on the way to a party’ shop. For most of our customers buying fewer than 12 bottles is almost unthinkable – it’d be too much of an inconvenience not to have a decent stock at home.”
Again, there are also strong business benefi ts in sticking to caseonly sales. Singles sales would invoke strict licensing laws, affect stores’ planning permission and have substantial cost implications. Single sales would also see Majestic compete more with Oddbins and Threshers as well as the growing army of supermarket express stores – something How has no appetite for and would require possessing the high street stores it does so well without. It simply isn’t going to happen. “We’re very clear that the returns we can achieve in the ways we operate are substantially higher,” says How.
Name: Tim How
Company: Majestic Wine PLC
Proposition: Wine warehouses