Kwik Save’s downfall is a lesson for Movement

“Recognised as the UK’s biggest discount supermarket offering customers quality in big well known brands, choice and value in high street locations,” says the advertisement for staff, that...

“Recognised as the UK’s biggest discount supermarket offering customers quality in big well known brands, choice and value in high street locations,” says the advertisement for staff, that was still online on a jobs website when this column was written. “The company is investing in its stores to bring them up to date,” it added.

The fact that the advertisement was for jobs at Kwik Save should act as a warning in several ways. One might argue that it reinforces the belief that ads should be read with a degree of scepticism — and that websites are often not properly maintained. 

But it also shows how quickly times change. Kwik Save was on the verge of going into administration — possibly to be followed by the group’s complete closedown — when this issue’s column was written.

Kwik Save’s decline and possible fall is cautionary for the amalgamated Co-operative Group and United Co-operatives. I am not trying to suggest that where Kwik Save led, the Co-op will follow — but no one is safe in the grocery trade as it stands today.

In the Christmas and New Year quarter of 2006, Kwik Save’s market share was 1.5 per cent. A year later it was a mere 0.2 per cent. The only other leading grocery retailer to suffer a drop in market share was the Co-op, falling slightly from 4.6 per cent to 4.5 per cent. Tesco, Asda and Sainsbury all increased their share — as did Aldi and Lidl.

It might be argued that these figures do not suggest a threat to the Co-op — but this would be wrong. Firstly, Tesco and Sainsbury are moving strongly into the convenience trade market. Aldi and Lidl also represent direct competition in some locations.

Meanwhile, Kwik Save’s fall coincided with its change of market positioning from discount retailer to convenience grocery, allied with taking on some general retailing, including electrical products. But its strategy was fatally undermined by a shortage of cashflow — despite a £50m ‘rescue’ cash injection in February and the supposed finalisation of the rescue package in March.

Prior to this Kwik Save had suffered a stock shortage during what should be the high watermark of retailing at Christmas. Subsequently various wholesalers either stopped supplies because of overdue debts, or refused to take on supply contracts for fear of this happening.

There were other serious difficulties in Kwik Save’s repositioning. Firstly, it smacks of desperation, because it follows a serious crisis — which in itself followed a demerger from Somerfield. Secondly, Kwik Save’s remaining 147 stores are generally in the wrong place for the convenience market. 

This fact is illustrated by the Co-operative Group telling us that it is not likely to be interested in any of the outlets if they come on the market. 

Kwik Save’s medium sized shops are competing directly with Germany’s Aldi and Lidl, which have advantages of major economies of scale, clever geographical locations, strong marketing and high quality alongside low cost. 

Kwik Save has much of its estate in low income areas where it can be assumed customers will buy little and often — the wrong profile for a discount retailer.

But in the convenience market, Kwik Save’s stores are too big. They average 10,000 square feet per outlet, against 2,500 square feet per Co-op Group convenience store.

Yet Kwik Save had many advantages. It was backed by private equity, with Paul Niklas heading the business as chairman and chief executive. Mr Niklas had been the managing director for four months last year under the previous owners, Back to the Future, which had bought the business from Somerfield. 

It is surprising that Back to the Future did not make more from the operation, given that it was headed by Richard Kirk, chief executive of the High Street clothing chain Peacock’s, who had also been an executive at Iceland.

A major current backer of Mr Niklas is Brendan Murtagh, a controversial Irish businessman. A former professional sportsman, Mr Murtagh’s wide portfolio of interests include Smart Telecom, a building products company, Kingspan, and property company Howard Holdings. 

There is considerable speculation that Mr Murtagh’s interest — which could align with that of other private equity backers — is to trim back the empire to a mere 100 shops regarded as potentially profitable.

Kwik Save owns in total about 230 retail freeholds — not restricted to the shops’ floorspace. Some observers predict that Mr Murtagh wants to sell the remaining 130 stores to existing rivals, giving Tesco and Sainsbury — and in some instances Aldi, Lidl and Netto — an increased presence in localities where they are not currently represented across the UK.

So there we have the real threat to the Co-operative Group — a potentially much enlarged presence in the convenience and mid markets by its real competitors. Along with that goes a serious warning. It is only a decade ago that Kwik Save was a big player in the market, with a thousand stores and a business valued at £1 billion. 

How the mighty fall. It is now up to Peter Marks and his retail team at the merged Group and United to strengthen the weak links in Co-op retailing and ensure the Co-op now increases its market share.

n This column recently discussed with concern developments at Nationwide Building Society, questioning whether its revised commercial direction was undermining its mutual ethos — and possibly leading towards demutualisation. The just published accounts reveal that the society paid-off several retiring directors, who made way for the new chief executive Graham Beale. 

Outgoing chief executive Philip Williamson was paid a golden handshake of £1.6m, on top of his annual salary of the same amount. His former deputy Bernard Simpson had a £890,000 pay-off and head of group services, Jim Willens, was given £926,000. Need I say more?

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