Insight - First Quench left high and dry

Recession has been the final straw for First Quench Retailing, owner of Threshers wine stores, but company accounts show the business has been struggling for some time amid a turbulent period for the UK's off-licence sector.

Job cuts and store closures are inevitable at First Quench, regardless of whether administrator KPMG succeeds in selling the business as a going concern, KPMG said today (30 October).

While the final collapse may have been sudden, the warning signs for First Quench, which operates 1,300 stores and employs 6,300 people, have been flashing for some time.

In the year to 28 June 2008, First Quench reported losses of GBP1.7m (US$2.8m), dragged down by a GBP22.4m one-off charge largely relating to redundancies, store closures and also a GBP4m fine from the Office of Fair Trading for tobacco price-fixing, according to company records obtained by just-drinks.

Sales for the 12 months were GBP687m, down from GBP774m a year earlier, while operating losses including one-time charges were GBP38.8m, against losses of GBP30.3m a year previously, the private company's accounts show.

No dividend was paid for the year.

With little sign of an improvement in trading and following the UK's descent into recession, First Quench implemented a GBP20m stock reduction plan in January 2009. In December 2008, it decided to begin closing some of its worst performing stores. It had closed 162 stores by June this year and was expected to close more by June 2010.

Signs of impending disaster for the company grew more prominent in June this year, when the group confirmed that credit lines had been withdrawn.

In company accounts, also filed in June, directors said that "it is expected that the company will be well-positioned to take advantage when the economic situation improves".

However, the firm's auditor, Ernst & Young LLP, was less sure. In the same document, Ernst & Young said the figures "indicate the existence of a material uncertainty which may cast significant doubt about the ability of the company to continue as a going concern".

Then, in August, First Quench lost CEO Yvonne Rankin, albeit due to ill health. In October, chief financial officer and acting CEO  Martin Healy resigned from the company.

After years of struggling to make money, recession has brought the final curtain down on First Quench, which simply ran out of steam.

These are tough times for the off-licence sector, as administator KPMG said today. "Trading in the off licence sector has become increasingly competitive in recent years," said its head of restructuring, Richard Flemming.

Supermarkets continue to encroach upon the category, setting up inner city convenience stores and using their scale to be more competitive on price. At the same time, industry leaders have warned for more than a year that duty tax rises are threatening jobs, particularly among independent retailers. 

Highlighting the pressure on independent retailers, the Association of Convenience Stores, a trade association for small shops, today called on the Government to freeze the minimum wage at current levels, instead of implementing the usual annual increase this autumn.

"In the ten years since its inception the minimum wage has increased by an inflation busting 60%. This means that retailers struggle to afford staff, cutting back hours, losing jobs and stalling important investment that would benefit the economy and the community."

In the alcohol sector, First Quench is not the only retailer to have suffered. Rival Oddbins has also been under pressure, with owner Ex Cellar tasked with returning the business to growth after buying the retailer from France-based Castel last year.

Wine retailer Majestic, meanwhile, this year reported profits for the 12 months to the end of March down at GBP3.26m, from GBP11.25m a year earlier. However, sales grew for the year and the company has pledged to continue its expansion plan.