Franchised off-licence and convenience chain Conviviality Retail (CVR:AIM) adds 1.5p at 151p today on news of the acquisition of wine, spirits and tobacco seller Wine Rack. Investors toast a deal which accelerates the £86.7 million cap's expansion into the wine market whilst simultaneously adding scale in the key London market.
Trading under fascias including Bargain Booze and Thorougoods, Conviviality is paying £1.65 million in cash to acquire L.C.L, the operator of 22 Wine Rack stores based mainly in Greater London. Conviviality says the deal fits perfectly with its strategy stated at the time of its IPO in late July to improve its wine offering as well as make further inroads into the South of England as it expands out from its North West heartland.
Debt-free Wine Rack, which generated £180,000 taxable profits from almost £11.28 million turnover in the year to March, brings its extensive range of wines and spirits to the table. Diana Hunter, who joined Conviviality as chief executive officer from the John Lewis Partnership in February, insists the tie-up will boost Conviviality's wine market expertise and broaden its customer demographic by attracting a more affluent new customer to stores.
The ambitious Hunter also sees scope to roll out more Wine Rack stores in the South and other parts of the country. Crucially, the transaction should yield improved buying power for Wine Rack as the business, expanded from 13 outlets since late 2009, benefits from Conviviality's 'greater buying power, marketing expertise and logistics experience.'
As Shares outlined recently, Conviviality, which debuted (31 Jul) on Aim having raised £64 million to buy out private equity firm ECI Partners and eliminate debt, offers investors a compelling roll-out story supported by trends towards convenience shopping and cut-price booze consumed in the home.
The Crewe-based group is pursuing an alcohol-led strategy which differentiates it from other convenience chains and the supermarkets' small format stores. Its promotions are typically cheaper than the grocery multiples, suggesting an opportunity to mop up market share at a time when austerity, safety considerations and an ageing population all underpin home drinking trends.
The UK convenience market is forecast to grow by £8.6 billion to £42.2 billion over the five years to 2016 as cash-strapped consumers seek to reduce food waste, while retail sales of in-home alcoholic drinks should grow to more than £17 billion by 2017. Supporters also argue Conviviality's 'asset-light' franchise model means it is cash generative and has minimal direct exposure to property costs and store overheads.