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Londis full of Christmas cheer

20-Jan-2004

Related topics: Retail

Londis , the UK-based symbol group which is currently at the centre of a possible bidding war between a number of rival groups, has reported Christmas trading figures which show that the uncertainty at boardroom level had little negative effect of the in-store performance.

The company, which operates essentially as a central buying arm for a network of more than 2,250 independent stores, said that its wholesale sales rose by nearly 7 per cent during the four weeks to 2 January 2004, with particularly strong performances from alcoholic beverages and chilled foods, both of which improved by 10 per cent on the 2002 figure.

The company also highlighted the fact that its retail partners were continuing to see the importance of investing in their businesses in the increasingly competitive retail market. Some 33 Londis retailers invested a record £1.1 million in store development projects during November and December alone and a further £0.5 million is due to be spent on refits in January.

 

"Our order book is filling up fast," said Tony Riddy, retail director. "Our retailers recognise that store development is the key to their future prosperity."

 

The group is doing its own bit to promote the development of Londis stores, running a special promotion in February linking store development to technology. Retailers who buy a Londis Laser system, a scanning-based system which allows store owners and managers to keep track of sales more effectively, and commit to having their store developed by the group within six months of installation will receive £2,000 towards the combined cost.

 

"Store development and Londis Laser are the twin pillars of our retailers' success, profitability and growth," Riddy claimed. "Store development helps to drive sales by a minimum of 15 per cent, while the Londis Laser can deliver at least 2 per cent extra profit on turnovers above £7,000 per week. That is why we are combining both elements within one promotional offer."

 

The Londis Laser system allows the company to assess the needs of each individual store - product range, space allocation and sales mix - and thus create the appropriate in-store design for each particular outlet in order to maximise the retail potential and give the fastest return on investment.

 

But while it appears to be business at usual at the Londis stores, behind the scenes there is a frenzy of activity. KPMG Corporate Finance has been called in to carry out an independent review of the company, evaluating every possible option from floating Londis on the stock market to selling the company to a potential bidder, entering an alliance with another company or keeping the status quo.

 

The whole process was sparked off by an offer for the Londis chain in December from Irish convenience store operator Musgraves, which also owns the Budgens chain in Britain, but with that bid giving a large chunk of the cash to Londis managers, rather than to store owners, a rival bid from Iceland's owner, the Big Food Group, was quick to emerge, this time giving Londis shareholders the lion's share of the money.

 

The Musgrave bid has subsequently lapsed, but while the BFG offer is still on the table, it is thought to have been joined by others from Nisa-Today's, the Co-op, Somerfield and Bestway. Spar, the convenience store retailers, has denied rumours that it too had made an offer.

 

With more than 5 per cent of the UK convenience store market, and the widest range of trading formats of any symbol group operator - traditional convenience, neighbourhood, forecourts, CTNs, Post Offices, pharmacies and city centre stores - Londis would certainly be a good catch for any of the potential bidders, but the sheer fact that its pockets are deepest means that BFG still remains the most likely buyer.

 

Despite saying that every option is being considered by KPMG, maintaining the status quo is not really an option for Londis. As chairman Peter Williams pointed out at the company's AGM in December, many issues facing the convenience store sector are still uncertain.

 

"How quickly will Tesco roll out its convenience format in the One-Stop chain acquired last year? How many more Sainsbury's Convenience stores will open over the next few years? How many Iceland stores will BFG convert to convenience formats, if the current pilots are successful? And what will happen to all those smaller Safeway stores, earmarked for disposal by Morrisons?" he said.

 

"One thing is certain for Londis and the convenience retailer in general. Competition will go on getting tougher and it will be especially tough for those with limited buying power and distribution muscle. However well organised we are, however efficiently we run our businesses, our current annual £500 million of sales is already tiny in comparison with the giants we will have to combat. It is too small already, even in the context of our industry sector, where our major competitors are all a multiple of our size.

 

"So a link with a bigger business, capable of delivering that extra buying muscle, has been a clear objective for some time."

 

The irony is that if BFG emerges as the eventual winner in the race for Londis, it will be buying a business which is in many ways more efficient than itself. Iceland has had a torrid time of late, and while it is showing clear signs of a turnaround, its Christmas performance was nowhere near as good as Londis - like-for-like sales grew 1.9 per cent, compared to nearly 7 per cent for the symbol group.