Brewers’ sale of family silver is not the route to a crock of gold

George Pitcher is chief executive of issue management consultancy Luther Pendragon. Brewers are selling off their assets again, but whether this is in the interests of shareholders is debatable.

The top of the market is like the end of the pier – you either come back from it or step off the edge. I must say that I’m intrigued by the way that companies are selling assets in what, in historic terms, continue to be highly valued equity markets. It’s not that they shouldn’t – it is, after all, a sellers’ market – but there must be a limit to the amount of value that companies can, or should, unbundle for their shareholders.

Take the brewers and their current attitude to the off-licence trade. It appears that, in “krazee prices” retail lingo, everything must go. Allied Domecq is widely thought to be courting a buyer for its Victoria Wine chain and Whitbread is likewise touting Thresher, Bottoms Up and Wine Rack. It has to be said that this is an awful lot of off-licence to be hitting the market at the same time.

Parisa is now the UK’s largest independent off-licence chain, backed by venture capital of some 56m in the summer that it deployed to acquire Greenall’s off-licence interests and to launch Booze Buster, a discount chain aimed at undercutting the supermarkets (on both sides of the Channel). We look to Parisa for a sign that it is in the market for Victoria Wine or Thresher or both.

There is nothing inherently wrong with the off-trade in this country that imaginative management can’t solve. I cannot believe that wines and spirits conglomerates should find it too demanding to integrate vertically into retail. Unlike other high street sectors, such as butchery and bakery, wines and spirits are not necessarily part of the main, weekly supermarket shop, very often because booze is purchased from a separate household budget and is more irregular and impulsive a purchase than food and household goods.

It follows that, while there is price sensitivity as with any retail consumable, there are different retail characteristics with alcoholic drinks that demand sophisticated retailing. What we have had with the large, brewery-owned off-trade retail chains is not so much sophisticated retailing as a load of old tat. By that I don’t just mean the premises – though they can be truly awful – but also poorly targeted product, poorly presented by uninformed staff.

It’s really not good enough, therefore, for major brewers to whinge that the supermarkets of Britain and France are irresistibly eroding their market share. Some of these drinks chains would have lost share if they had a monopoly in a market composed solely of Dean Martins.

So, it will be fascinating to see what Parisa does with its existing and future outlets. Booze Buster and its price challenge to the supermarkets is one game, but it is not the only one in town. Clever wine-buying and presentation are others and the supermarkets do not have a monopoly on those talents.

Having said that, Allied could make a case for selling Victoria Wine on the basis that it no longer needs a retail presence now that it is effectively out of brewing, having flogged its 50 per cent stake in Carlsberg-Tetley. With Guinness having struck its deal with Grand Metropolitan, Allied has to do something on the international spirits distribution front in order to keep up.

But that’s my point. Selling things at around the top of the market, or for fear that a major collapse in share prices is just around the corner, is not much of a strategy for delivering shareholder value over time.

It may be unfair to pick on the brewers, but they do seem to have a talent for selling the family silver. Bass is another example. This week, the brewery and leisure giant is writing down the value of its bingo division by some 200m in preparation for a sale. Enter those handy venture capitalists again.

Now, the mass-market gambling scene may no longer be a happy one for Bass, but perhaps it needs attention to detail and investment to make it work – rather as do UK off-licences. I say this because rival leisure group Stakis is proceeding with a 14m investment programme in its casinos, despite lacklustre performance recently. True, there is a world of difference between casinos and bingo halls, but Stakis’ aim is to give its casino outlets bingo-style mass appeal.

Bass and Stakis can’t both be right. Stakis may live to regret its investment. On the other hand, Bass may be accused of selling out when market capitalisations are under threat. This brings the general quality of managements, and specifically Bass’s, which have developed conglomerates (that seem to be failing) into question.

The same strictures might be applied to Whitbread, which is considering quitting brewing in the UK. In fact, I have some sympathy with brewers that have been messed about by government and regulators this past decade. But if Whitbread does quit, what is its developing strategy?

It has some 50m to invest in developing its Hogshead pub chain and it has managed to turn itself into something of a diversified catering and leisure group with its purchases of the Cafe Rouge and Dome chains and the David Lloyd health clubs. But what hope can shareholders have that Whitbread will manage its position in these competitive markets any better than it has run off-licences? Quitting while you’re ahead hardly amounts to an inspiring strategy.

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