Can Castel really be committed?

04 May, 2007

Like a vote of confidence in a beleaguered manager by a Premiership football club chairman, the news that Castel is "committed" to the future of Oddbins should leave you groping for the nearest salt cellar. Castel may well have plans to revitalise what was once the most exciting brand in high street wine retailing - although how would we know, given that the company appears loath to communicate with the press, let alone its own members of staff? - but it seems to have run out of ideas.

Or, to put it more accurately, good ideas. Who was the idiot who came up with the wheeze of re branding 22 ­Oddbins stores under the Nicolas fascia? Nicolas may work in urban Paris, where there is little or no competition from supermarkets and a substantial percentage of the population shops locally, but has it been a success in London?

To me and, I suspect, the few consumers who are familiar with the brand, it comes across as an over priced chain specialising in French wine: Oddbins' all-too-sensible older sibling, in other words.

The official line is that the newly-converted Nicolas stores were unprofitable - largely because of high rents - but is it really impossible to make money out of wine retailing in places such as St Albans, Haslemere, Bath, Winchester and Henley-on-Thames? The people who live there aren't exactly short of disposable income. A good manager with a well-chosen bespoke range could surely turn a half-respectable profit.

And who is to say that the denizens of such wealthy towns will be prepared to spend more money on wine at Nicolas than Oddbins? There may be a pool of committed Francophiles out there who like the idea of being served by someone they can talk Franglais to and are prepared to pay for the privilege, but it's a long shot. After all, Nicolas' margins appear to be even higher than Oddbins', and that's saying a lot.

Surely not even Pierre Castel would deny that his family's company paid over the odds for Oddbins in 2001 - £57 million looked like a lot of money at the time, but with hindsight it was a staggering miscalculation. Most commentators put the current value of the chain at between £14 million and £18 million. Even if you discount the sum that was not paid to former owners Diageo (said to be in the region of £19 million), that would still leave Castel with a loss of at least £20

million to swallow.

No doubt Castel believed it would increase sales of its own brands in the UK - a classic example of vertical integration - but as Whitbread, Allied and Seagram discovered in the past, selling your own products through a chain you own makes it harder, rather than easier, to flog them to other retailers. My guess is that Tesco is less interested in buying Castel brands now than it was five years ago.

But let's assume that part of the Castel line is true - namely, that spiralling high street rents make it very difficult to run an Oddbins-style operation . At least one competitor believes that it's "impossible to pay high street rents and compete in this sector. Thresher is still losing money, and so is Oddbins." The latter is definitely struggling, with a rumoured shortfall of £4.2 million in its recent financial year.

My hunch is that Castel is preparing to bite the bullet and dispose of Oddbins once it has re branded the better stores as Nicolas.

Insiders say that Pierre Castel is finally prepared to talk to prospective purchasers, conceding that a run of five managing directors in five years has failed to turn Oddbins round.

He may insist that Castel retains some sort of distribution agreement with the new owners so as to escape with some pride intact, but it's surely a case of when, rather than if, he decides to sell.

Mike Paul's perfect guide to the highs and lows of wine retailing in the UK

Wine: A Category in Crisis? was the none-too-cheerful title of Mike Paul's recent speech to the WSET.

The former managing director of Western Wines and current chairman of Match and Wine Intelligence did a good job of outlining the pitfalls of making, importing and retailing wine (flat UK sales, over-powerful retailers, duty increases, global surplus, a fragmented producer base, government intervention, too many promotions and low margins), as well as the greater profits to be made in other sectors of the drinks industry.

Against the odds, he also tried to sound upbeat. The positive messages were as follows: wine is aspirational and is blessed with heritage as well as "green" attributes. It also has a price ladder with rungs that extend from £2.49 to £1,000 or more a bottle. More to the point, the UK population is getting richer and older, making it the perfect target audience for the wine trade.

He didn't say it, but I'd add that the average quality of wine has never been higher, even if the price is kept artificially low by a combination of retailer competition and supply and demand.

At a time when there are a lot of long faces in the wine business - and not just at Oddbins - it was a timely speech, delivered with insight, humour and no little passion. If you want a copy, get in touch the WSET on 0207 089 3800 or via the website

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English wine: a happy harvest for Christmas

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