No big deal

29 October, 2010

Nobody seriously expected First Quench to be sold as a single entity, but even today there is some surprise at the lack of major deals struck.

Wine Rack, the jewel in the business’s rather tarnished crown, was sold to Venus, along with just 13 of its best-performing shops. Fourteen more went to Wickham Vineyard, to be rebranded as WineShak. Thirty-four stores were bought by R&M Swaine, parent company of Rhythm & Booze. The Haddows name is still up for grabs, should anyone express an interest.

For the past year, stories have circulated about potential buyers being ignored or rebuffed by the administrator, KPMG, creating a distinct impression that more shops could have been retained as off-licences had the process been a little more flexible and conversational.

Venus boss Laki Christoforou is on record as saying he originally bid for 100 Wine Rack branches, but settled for a fraction of that after fruitless negotiations about the IT situation in the stores he had earmarked.

Raj Chatha, owner of European Food Brokers and the Whittalls Wines chain, wanted 200 First Quench stores to add to the 109 he had acquired following the collapse of Wine Cellar. He failed to agree a price with KPMG and accused the administrator of “horse trading”.

Philip Craig and George MacRitchie attempted to buy all 254 Scottish stores last year, but also could not reach agreement with KPMG. This autumn their Brand Invest Group company negotiated directly with landlords and has established a chain of 15 shops as Winehouse and Cellar No 1. They have plans for an estate of 50 within two years.

Former Unwins marketing director Bill Rolfe, director of 10 International, saw an opportunity to return to retail when First Quench stores became available.

“The number I put forward was between 10 and 20 shops,” he says. “There was a syndicate of wine trade professionals interested and I was the spokesman. It was a small group of individuals who were interested in what could be bought from the administrator.

“But KPMG wouldn’t talk to us unless we were interested in 50 shops. It did actually take a little bit of interest away, because I thought ‘this is going to be such a difficult thing to put together’. If you’ve not got the interest of the seller, it’s almost a non-starter.”?Eventually Rolfe and business partners Toby Hancock and Neil Bench settled for one site for the fledgling Market Square Food & Wine Company, in East Grinstead, West Sussex, having reached agreement with the landlord.

“It would have been more difficult to launch 10 shops, but if the investment had been there it wouldn’t have really taken much more work. It’s about rolling out a template, and the template was created for me by this one shop so it could have been done for 10,” he says.

“I would say KPMG would have been better advised to have approached the wine trade in an open way. It was a little bit cloak and dagger, that’s what I felt. Yes, there was a website you could go on and so on but it was very impersonal.

“KPMG could have said ‘we’re very interested in small and large enquiries for the shops’, and obviously timing was key in all this. It allowed time to drift and people either went away or just did their own thing, as we did.

“We were forced to go to the landlord directly. KPMG also asked for a premium to hand over the keys to the shop, even though there was no goodwill.”?One senior trade figure adds: “According to the administrator all the bigger deals would have taken too long and were marginal at best; I suspect its actions were geared around its fees. Why would it do all that extra work if possibly there wasn’t going to be enough money in the kitty to cover its fees at the end?”?Administrator Ian Corfield of KPMG is delighted with the progress his team has made in the past year, and is convinced the outcome they have achieved is the best possible one for creditors. First Quench collapsed with liabilities of £41 million and KPMG’s fees will amount to around £11 million. Creditors are likely to see about 1.4p in the pound.

“There is still some work to do,” he says. “To all intents and purposes the vast majority of the trading and property disposal phases are complete. There are ongoing matters relating to the position with [logistics company] NDL and with the pension fund; but we’re hopeful it will be done quite amicably.

“There will be a dividend for creditors – but with 13,000 creditors, that’s going to take a little bit of time. We have recently applied to the court for extended administration. We’re in a pretty good place.

“We sold 102 stores and assigned over 370 leaseholds. It was complex – 6,500 employees, 1,300 landlords and sites, £50 million of stock, franchises, retention of title, and a huge amount of press interest. But this is what we do. We had a short period of contingency planning in advance, a matter of days. Yes, it was complex, but it was handled efficiently.”?Corfield rejects any suggestion that KPMG ignored offers for shops, which would have given creditors a better return.

“I can absolutely and categorically say that anybody who expressed an interest was provided with all due care and attention. If the offer wasn’t high enough or the terms that were attached to those offers were unworkable, absolutely I didn’t do any deal.”?Much interest, Corfield points out, came from business people who simply wanted to obtain useful information about margins, lease arrangements and other commercial factors that could be valuable. He says as “officers of the high court, we have a statutory duty” to act impeccably and adds he is “not aware of any major criticisms” of KPMG’s handling of the administration.

Patrick McGrath MW, managing director of Hatch Mansfield, is delighted to see so many independents blossoming as they pick up individual former First Quench shops from landlords.

“We had a very strong relationship with First Quench, but actually it’s one of the best things that’s ever happened to the trade,” he says. “It’s given people lots of opportunities to start their own businesses. There are lots of very good independents up and running that didn’t have to spend £20,000 or £30,000 on kitting out their shops, and they had a captive audience.

“We need a multi-channel trade. I’m enthused by the future. There’s no point thinking about what might have been.”

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