Distressed Conviviality needs much more than a stiff drink

Comment Martin Flanagan

Things have come to a pretty pass in austere times when even flogging cheap hooch can’t turn a buck. Conviviality, owner of the not desperately quaintly titled Bargain Booze, says it is likely to stagger (I paraphrase) into administrative receivership in the next ten days “unless circumstances change”.

Well, as circumstances have stayed stubbornly unchanged for the embattled Bargain Booze for quite some time, it would probably be inadvisable to bet the farm on a drinks deus ex machina. No doubt, any administrators will entertain as many offers as possible from parties who think they can make a better fist of running the chain than Conviviality did.

But, even at best, retail administrations flushing out buyers usually involve outlet closures and significant redundancies. The patient might be saved but not infrequently they have a limb or two cut off. If not, the incumbent management could have probably saved it.

So what went wrong at Conviviality – apart from a string of profit warnings, chief executive Diana Hunter stepping down, a £30 million tax bill and an abortive £125m capital-raising that failed to produce sufficient investor support?

Over-expansion rings true, with the company’s reach exceeding its grasp. Ms Hunter, a former Waitrose director who had been the boss since 2013 and steered the group’s flotation that year, oversaw a string of acquisitions, including Wine Rack, Matthew Clark and Bibendum. Bit between the teeth, Conviviality also took on newsagent chain Central Convenience from Palmer & Harvey earlier this year.

Hindsight perfects all, but the acquisition flurry now looks ambitious, which is often a business euphemism for unrealistic. There are always integration challenges with acquisitions so better to space them out. That’s apart, in Conviviality’s case, from worrying debt accumulation and profit margins being squeezed due to higher import prices on the back of sterling’s post-brexit vote weakness.

Add to the distressed cocktail additional costs like the living wage, mixed with consumer caution for much of the past 18 months, and you can see Conviviality faced a plethora of pressures.

But it is ill-conceived headstrong management decisions that often turn generic pressures into a company-specific death spiral.