They say you only get to really know who your friends are when the chips are down, which has been very much the case for those working within the Conviviality Group over the last couple of weeks, where a series of increasingly serious financial announcements have shocked the industry. On the face of it none of this is good news for its suppliers and customers but, rather than grumble, suppliers are coming together to galvanise support across the trade to help Conviviality get itself back on track.
Major suppliers, and their producers, are rallying the trade to stand firm to ensure Conviviality, by far the UK drinks industry’s biggest player, is able to get through its trading difficulties not just for its own sake, but for the health and future of the sector.
Let’s face it there is something about the British psyche that means we don’t like it when we feel someone has got just a little too big for their boots. Rather than be lauded for their success, we are only too quick to pull many high achievers down to size.
Yes, we might be pleased to see you become the Formula 1 Champion, win Wimbledon, or pick up an Oscar, but it’s important you win with a certain amount of grace and humility.
It’s the same in business. As soon as Tesco started going around boasting about the fact we all spent £1 in every £8 in one of its stores, its wheels started to come off and people started to shop anywhere but Tesco.
Now Conviviality is a different kettle of fish. Its recent financial woes, that has seen the value of the business plummet by a whopping £380m and trading on its shares suspended on the back of a surprise £30m tax bill – has resulted in a very different kind of reaction from the trade.
It is not one of finger pointing and blaming (well if there is it’s being done discreetly behind the scenes), but rather suppliers rallying round to ensure Conviviality’s financial difficulties don’t get any worse.
Not all of this is being done completely out of the kindness of their hearts. After all, they will have huge sums of money and stock wrapped up in whatever is going on in the not-so-clear inner workings of the Conviviality machine. Conviviality is also not just your average drinks distributor.
UK’s biggest drinks player
What really is at stake here is by far the UK’s biggest drinks company. Even with its two profit warnings it is on course to hit profit levels of up to £56.4m from a turnover that was £1.6 billion in 2017.
It is a company that is responsible for sourcing, buying and distributing wine to every conceivable channel and outlet that sells wine in the UK.
So the fact that Conviviality has reported two profit warnings in a matter of days, warned it might struggle to meet its banking covenants, cancelled an interim dividend payment to claw back £8.2m and pulled in PwC to help it work with HM Customs over its outstanding £30m tax bill, is more than just a little worrying.
It is now looking to raise at least £50m (which could rise to £100m) next week either through issuing new shares to shareholders or through an emergency rights issue. But it means going to the same shareholders that have seen their share price fall off a cliff over the last week. There are even fresh reports this weekend that chief executive, Diana Hunter, might have to lose her job to satisfy investors and shareholders before extra funding can be obtained. Chairman David Adams is also said to be expected to take up more of an executive role.
If things go from bad to worse at Conviviality then it is not good for anyone trying to making a living in the supplying, buying and selling of wine in the UK. So it is perhaps understandable that the majority of people that have talked to The Buyer have done so off the record.
“It can’t fail” for the health of the industry
“No-one can afford for Conviviality to fail,” a chief executive of a leading wine supplier told The Buyer. “The company is essential to the health of our industry. Its key suppliers are all standing by it and we are talking to each other about what we can do.”
He went on to make this appeal to the wider industry, understandably worried about their short term position. “We need to calm the trade and stop all the doom and gloom. The big worry is that if people take fright and put a stop on supply. There are a lot of rumours circulating in the trade which frankly are not helping anyone. From what we can see it is very much business as usual. Wines and supplies are going out to restaurants and customers as normal. That’s what we are hearing from the coal face.”
But our source did also recognise the difficulties some suppliers were having with their insurers and getting cover for supplies until the financial situation is sorted out.
Another leading supplier’s chief executive, told The Buyer that it was very important, despite the current issues and the threat of losing insurance cover, that the trade continues to do business and supply wine to Conviviality.
“I have total confidence in the company and what they are trying to do,” he stressed. “I know the business very well and it will come through this. It has two very strong companies in Matthew Clark and Bibendum and has first class people working there. It is, after all, a company that is still set to make a profit of over £50m.”
Another managing director was a little more guarded: “It’s all rather surprising and worrying and I whole-heartedly agree that it is not good for the trade in general. I offer our support, but we have also received several recent emails asking for early payments to agree business overrider payments. Which we would pay but they have not raised an invoice for it.”
A Bargain Booze supplier told The Buyer that it has been asked to send stock direct to some of its stores. “We’re putting a van on the road to help them out,” they said. “For the sake of the company I hope they get past it, but from a business point of view we are having to act with extreme caution and get cash on delivery. Trust has been compromised.”
Those companies offering full support
Robin Copestick, managing director of Copestick Murray that supplies different parts of the Conviviality business, was happy to be quoted and said: “I was very surprised and disappointed to hear that Conviviality Plc is having problems. They are an excellent customer of ours and the Bargain Booze chain has been one of the loyal supporters of our ‘I heart’ brand. We will do whatever we can to help maintain supply whilst at the same time ensuring that we trade within terms. We have meetings organised over the next week and we will be as supportive as we possibly can.”
Roger Jones, Michelin star chef at The Harrow at Little Bedwyn who carries a number of Conviviality’s wines, said: “Conviviality through its distribution chains, Bibendum and Matthew Clark, are the backbone of the UK on-trade having brought a tsunami of changes to the restaurant and bar industry over the last few years.”
He added: “Without these guys we would still be drinking (or not drinking) poor quality wines across the UK. They provide a benchmark for quality and have been lauded by their suppliers. They represent key wineries across the globe. Recently Great Britain has been disrupted not by the future outcome of Brexit , but by scaremongering and lack of confidence, what we don’t need is another witch hunt. We need to stay focused and get the full facts before we stray and ruin a Great British constitution.”
Even competitors are looking to rally around Conviviality. “We wish them all the very best. We want everyone in the industry to do well as that means we are all doing well. There are clearly some serious challenges there when you take on businesses of those size, but hopefully it can get through this,” said a director of a rival national distributor.
But not all, though, were so encouraging. One leading figure said: “Off the record, but please give any nervous Conviviality suppliers my email!”
It has been big surprise after big surprise
It would appear that everything Conviviality does seems to catch the industry, and the City, by surprise. Both its major acquisitions of Matthew Clark and Bibendum were kept a closely guarded secret right through to the moment they were announced.
But, worryingly, this week’s financial fall-out seems to have taken the senior Conviviality executive team by surprise too. There is just one too many mentions of the phrase “arithmetic error” for comfort. But then in January, Diana Hunter, was painting a rather more bleak picture than expected when she blamed a 13% drop in half-year profits to October 29, 2017 to the later-than-expected “phasing” of cost-cutting efforts in the wake of all its recent acquisitions.
Whenever the dust settles it will take some time for the company to claw back the near 60% fall in its share price that has seen Conviviality’s market value fall to £185.5m from £567.3m before the first unscheduled trading update.
Shot across the bows
Although supportive, some suppliers said they hoped this serious shot across its bows would also wake Conviviality up to what they saw as some of its shortcomings with how it works with the trade. A couple of suppliers told The Buyer they were concerned by what one called “the high churn of staff” and that it was not always easy to get to know the new person in charge of a particular department or “who was reporting to who”. “You are usually more inclined to help someone out if you have met them and like them rather than just being a name,” one said.
Perhaps they suggest, this is the consequence of bringing two national wholesalers, Matthew Clark and Bibendum and one major national business, PLB, into the Conviviality group over just 10 months.
In light of all the suppliers’ reactions and support, The Buyer asked Conviviality how it was responding to the practical needs of a market that still requires wine in the right place at the right time regardless of what it needs to be doing with HMRC.
Its response was quite clear: “Our fundamentals haven’t changed. We’re a profitable business, with the very best route to market in the UK. Our suppliers, producers, customers, banks – in fact all of our partners – know this and we’ve been overwhelmed with support as we work alongside PricewaterhouseCooper to resolve this short-term challenge.
In many ways the industry has been here before. It has stuck together and tried to help other businesses through awkward times be it Threshers, Victoria Wine or Oddbins. Enotria&Coe, for example, has certainly benefited from so many of its suppliers and producers taking a long term view when it was going through its own difficulties with the mechanics of the Coe Vintners deal. Time that has enabled that business to prosper, and its suppliers with it.
The ball is firmly in Conviviality’s court and its senior teams have said how “honoured” they have been to receive such levels of support, which has arguably taken some of the industry veterans there as much by surprise as the profit warnings.