Profits and customer numbers soar at Majestic
Majestic Wine defied economic uncertainty and the wettest summer on record to post a 3.9% rise in pre-tax profits to £9.2m in the six months to October 1.
The retailer’s like-for-like UK sales were up 0.6% and overall retail sales rose 4.7% thanks to the opening of new stores.
The Majestic empire will stand at 194 by the end of the year, and chief executive Steve Lewis told OLN he plans to open a further 16 stores per year until Majestic reaches 330.
The chain’s customer base also rose 11.2% in the past year to 594,000, and Lewis said Majestic is selling them more expensive bottles.
“The average price our customers are paying per bottle was up from £7.13 to £7.46,” he said.
Sales of fine wine – still wine bottles priced above £20 – also rose 12.8%.
Lewis said: “It would seem counter-intuitive to be selling large quantities of fine wine during a recession, but it costs £18 for a bottle of Pinot Grigio at a large pizza chain, and that would only retail at £6, so consumers would rather by a bottle of wine at that price at Majestic that they can really talk about.
“There is a world wine shortage – production is down around 25% – and bottles will go up 50p-£1.
“I think consumers who will have to pay £7-8 for a bottle of Pinot Grigio will come to Majestic and buy Gavi de Gavi instead.”
According to Nielsen, still wine 2.1% by value but dropped 2.5% by volume in the year to September, but in the same time Majestic’s still wine sales grew 7.5% by value and 2.6% by volume.
Lewis attributed Majestic’s success to the “explosion of interest” in food in the UK, with consumers cooking at home and matching it with good wine.
The chain is teaming up with the Observer’s food magazine to attract more consumers in the coming months, and it will also run TV advertising in the London region in the run-up to Christmas.
Online sales rose 14% at Majestic, and Lewis said: “Online now represents 10% of our business. I can see it making up 15% but never 50%.
“Consumers have in no way fallen out of love with coming into our stores, talking about the wine and buying it.
“But we switched to selling six-bottle orders online in June and that has driven online sales.
“Overall I am happy with the six-bottle sales format and that will never change.
“You could never offer graduate staff trained to a WSET Level Three, with free delivery and free in-store tastings, you have to expect your customers to buy six bottles minimum if you want to make money.
“I think it would be very tough for any challenger to come along and copy our model now, with the stores we have and the investment in our graduate staff.”
Sales to business customers also rose 8.3% and Lewis called the demise of Waverley TBS “a great opportunity”.
The net returned to shareholders increased 23.5%, from £4.279 million in the six months to September 26, 2011, to £5.287 million this time around.
Lewis said: “The City is prepared to invest in drinks and in retailing as long as they can see long-term sustainable growth.
“The typical Majestic investor is very long-standing – our top four investors have been at Majestic for more than 10 years.”
Lewis added that New Zealand wine will continue to drive growth over the next year.
“New Zealand is incredibly important to us,” he said. “It makes up 19% of our still wine sales, but in the UK market it’s only 6.4%, so New Zealand is key to our future.
“The other area that has done really well is Portugal. Chile has seen a resurgence, Italy is doing well, and so is Spain, particularly white varieties.”