Last October, when they finally turned off the tap and off-licence chain First Quench bit the sawdust, few were surprised. The ugly business of winding the operation up showed how sick First Quench had been. The conglomerate of 1,200 stores - divided into a bewildering array of brands, including Threshers, Wine Rack, The Local, Victoria Wine, Bottoms Up and Haddows - may have had sales of £687m but for months had been seen as so vulnerable to collapse that credit insurance was withdrawn. Within a month, 6,000 staff had lost their job.
The writing had long been on the wall. In the final decade of its existence, Threshers had been kicked from pillar to post by six different owners: Whitbread and Punch Taverns in tandem (1999), Nomura (2000), Terra Firma (2002), and the venture capitalist Edmund Truell's Duke Street Capital (2007), which disposed of it to US private-equity group Vision Capital before the ink was dry on the contract.
All contributed in one way or another to its departure. Guy Hands' Terra Firma, for example, asset-stripped it of £200m by the sale and leaseback of its property estate. But what emerges from the murk is a picture of a group of slightly second-rate bottle shops that was poorly managed by cashflow-hungry money-people with no real vision for the business. Few would have known a bottle of Newcastle Brown from 75 centilitres of Cloudy Bay.
Running an offy in 21st-century Britain is enough to drive anyone to drink. Between 2004 and 2009, their number had fallen from 5,430 to just under 4,400. The public seems to be calling time on one of our longest-standing retail institutions. The concept was created in 1860 by William Gladstone, when he was chancellor of the exchequer. 'Off-licences' tended to be granted to grocers expanding into the sale of alcohol, and the sector was given an early fillip by a big reduction in the duty on French wine following the signing of a commercial treaty with Paris in 1861.
Over the years, off-licences became specialist outlets with an identity as distinct as that of the butcher, the baker and the greengrocer, with whom they shared the high street. Workers would pop in to buy beer on their way home; it was the perfect place to pick up grandpa's bottle of Teacher's or grandma's Dubonnet. Dinner-party hosts looked no further for their Mateus Rose or Blue Nun. But by the close of the 20th century, a predator was growing ever stronger: the supermarket. One man who has a unique insight into the state of the market is David Wetz. He was at the helm of Unwins shortly before it became the first big off-licence chain to go into liquidation, just before Christmas 2005.
When it comes to the question 'Who killed Threshers?', he has no doubt where to point the finger. 'Never pick a fight with someone you can't beat,' he says. 'The supermarkets were making inroads (when I was running Unwins) because they were cheaper and better. Over the years, off-licences have had to cope with lower margins and lower profits. Wine has become a commodity. It's about achieving large volumes with very low margins.'
Supermarkets have certainly turned beer into a commodity. The big grocers offer cases, stacked six feet high, at rock-bottom, loss-leading prices - often cheaper than bottled water. Since the demise of Unwins, the likes of Tesco and Sainsbury's have accelerated the pace of their return to the high street via their Tesco Metro, Tesco Express and Sainsbury's Local branded outlets. According to Verdict Research, the multiples had 2,498 convenience stores in 2004, and this total rose to 3,360 in 2009. In the same period, the number of Co-ops grew from 1,412 to 2,569.
The victims, of course, have been the off-licences. 'The consumer now has far more choice,' says Malcolm Pinkerton, a senior analyst with Verdict. 'And they like the con- venience of getting their food and drink in a one-stop shop.' But there is still room in the high street booze game. The supermarkets have not had their way with everyone, and two chains stand out for defying their hegemony: Majestic Wine Warehouses and Bargain Booze.
One is the aristocrat of the sector, a wine retailer whose average bottle sells for £6.41, well above the national mean of £4.39. The other is the upstart from the wrong side of the tracks, which offers big drinks brands at a discount under the slogan 'The more you buy, the more you save'. Both found a way of staying profitable, not only in the face of the supermarkets' onslaught but during an economic downturn too. Says Matthew Hughes, joint MD of Bargain Booze: 'We have a saying: "Be distinct or be extinct." If you've got a USP, you can survive and thrive in the face of superstore domination. We've proved that, Majestic has proved that.
'It's about quality of stores, about making sure that you have a strong retail business with a strong retail estate that means you can survive, whatever the economic weather. We find ourselves in a more clearly segmented specialist market and there's not much space for an undifferentiated business.'
Bargain Booze has 602 branches in England and Wales - almost all of them franchises - with about 400 of them in the north-west, including north Wales. And it has ambitious plans for expansion. 'We could at least double our size in the next couple of years,' claims Hughes. This would be through a combination of new Bargain Booze outlets and more convenience stores branded Bargain Booze Select Convenience and Thoroughgoods Select Convenience.
Majestic's offering could not be more different. The Bargain Booze customer is happy to drop in regularly to pick up Chardonnay on offer at three bottles for £10 - best drink it so cold you can hardly taste it. But at Majestic, the typical customer visits one of its warehouse-style stores only twice a year, but they tend to spend big: an average £133 per visit. In a bid to increase the frequency of visits, chief executive Steve Lewis recently cut the minimum purchase from a case of 12 bottles to six bottles. Punters can just about carry a six-bottle case home after a hard day at the office.
Lewis attributes Majestic's success partly to its avoidance of high-rent locations. 'The high street off-licence has been in decline for a decade, so this is nothing new,' he says. 'They are paying high-street rents but are unable to get the density of sales to justify their cost base, and they're competing with supermarkets, which are moving back onto the high street.
'Take Marylebone High Street (in central London). On one side, you've got a big Waitrose and a Tesco Metro, both heaving with shoppers. On the other side, you have two high-street off-licences. They can't compete on price because they have to operate on higher margins.
'We have a lower cost-base because we are off the high street - because we need car-parking space. We also offer excellent customer service. Nearly 100% of our store staff are graduates, and they're all highly trained. We also invest heavily in our trainee managers, who all do the Wine & Spirit Education Trust advanced certificate after six months, and many go on to do a two-year course.'
This, helped by improvements to the range, more frequent mailings and a 25% growth in online sales, resulted in a pre-tax profit for the six months to 30 September 2009 of £6.1m, up 9% year-on-year. In the same period, sales were up 13.4% at £106.7m. Lewis is bullish about the future, too. He expects the company to add to its current estate of 153 shops at the rate of 10 shops a year, the pace of growth being restricted only by a shortage of suitable sites.
Says Richard Siddle, editor of Harpers Wine and Spirit magazine: 'There is growing demand for better-quality wines in the UK - wines that the big supermarket chains are turning their backs on and wines that producers around the world are struggling to find a home for in the UK.
'This is the time for ambitious independent wine merchants to act,' he says, 'either by snapping up some of these prime high-street locations or through capitalising on their demise to offer customers a better-quality, improved wine retail service in their area. First Quench was clearly not capable of handling or making these stores work, but that doesn't mean smaller, more independent operators can't.'
Paul Dawkins is one of this new breed of independent wine merchants. He gave up his job as a management consultant to set up Heaton Wines in Romsey, Hants, three years ago. 'You have to understand that there are two markets for wine: the bulk market and the discerning market,' he says. 'Most people who buy quantities of wine buy on price and on offers. You see that in the supermarkets: people pulling bottles off shelves without looking at what they're buying. I don't think that has changed much in the past few years. One of the problems for the multiples is that they compete on exactly the same proposition as the supermarkets, and they can't win.'
Dawkins' cheapest offering is a Cotes de Gascogne vin de pays at £6.90, and his most expensive a St emilion Chateau Cheval Blanc 1983 at £337. He is feeling the recession but will stick to his guns, despite pressure from a quarter that would have wilted lesser men. 'My wife says we should get in something cheaper, but I say: "No, there's no point."'
Perhaps the battle-scarred Wetz has the right idea. Following the collapse of Unwins, he made no attempt to get back into the drinks retail trade. Today he runs a cake manufacturing business in Wales.
A PERKY LITTLE NUMBER FROM ODDBINS
If any brand deserves a distinguished service medal in the off-licence wars for its gritty ability to hang on, it's Oddbins.
Simon Baile's acquisition of this mildly eccentric chain has all the ingredients of a fairy tale.
The son of the man who turned Oddbins into Britain's best-loved wine-shop chain swooped to acquire it for a knockdown price after it had been run into the ground by a succession of big-money owners. He is now hoping, with brother-in-law and business partner Henry Young, to return it to its former glory.
Baile first worked for Oddbins in his school holidays when he was 14. In those days, the business was owned by his father Nick. 'Oddbins was going from strength to strength,' he recalls. 'When my father took over the company in 1973, there were 12 stores, and 11 years later there were 63 - three of them in France. At that time, there was exponential growth, and it was all organic. There was no buying up of chains; it was all about adding one here, one here, one here. And some of the best locations we have now were the best locations he had then.'
When Seagram stepped in with an offer Nick Baile couldn't refuse in 1984, he sold up. At first, all went well for Oddbins. Aided by an imaginative advertising and marketing campaign featuring the cartoons of Ralph Steadman, it was named wine merchant of the year in 1988, the first of 12 such awards.
By 2002, the number of stores had risen to 278, but cracks started to show. It was bought by Castel Freres, the big French wine-producer, for a rumoured £57m. But despite major restructuring and store closures, it lost £8.6m in 2007-08.
When Baile jnr arrived, branch numbers were just 158, and nearly 20 more have gone since. Simon has also swung the axe at the sprawling range of wines on offer. 'There were 2,000 product lines, which was mad, and a lot of it was not that great. So we're taking out 1,500 product lines and introducing 500 to 600 more. So we'll have a total of around 1,000.'
And Baile reckons he can do this without losing Oddbins' reputation for the quirky, quality wines you won't find in your local supermarket. 'We want to be more personable,' he says. 'If you go into Oddbins looking for a bottle of Oyster Bay, you won't find it, but if you want a bottle of Gewurztraminer from northern Italy rather than Alsace, then do go to Oddbins.'
Baile's approach appears to be working. This year, he reckons, Oddbins' Ebitda will be a much-improved -£1.5m.