SB Voices: Conviviality comes crashing down

6th April, 2018 by Amy Hopkins

Conviviality’s sad demise is evidence – if any were needed – that the spirits world is full of uncertainty, writes Amy Hopkins.

Bibendum has been sold to C&C Group

The series of events that unfolded during March/April 2018 will go down in the history books as one of the biggest upheavals to operators and investors in the UK drinks market.

Conviviality’s fall from grace has dominated headlines over the last month as its litany of woe snowballed. The company admitted a series of errors that precipitated its collapse into administration this week. An “arithmetic error” in its forecast for Conviviality Direct led to a profit warning and a previously unidentified £30m tax bill preceded two further warnings, all in the space of just two weeks.

The company scrambled to secure £125m for a recapitalisation plan, but was unsuccessful. CEO Diana Hunter, a trailblazer in the UK drinks scene, fell on her sword after five years in the role, during which time she guided Conviviality through its stock market launch and subsequently quadrupled its revenues.

Throughout the saga, suppliers have remained tight­lipped, but tensions were evident. Equally, shareholders must have broken out in a cold sweat. Writing in The Guardian, Rob Davies calls the saga “one of the quickest corporate collapses ever seen in the UK”.

Cider and beer producer C&C Group, backed by brewer buddy AB Inbev, took matters into its own hands and purchased wholesale and distribution arm Conviviality Direct, mainly comprised by Matthew Clark and Bibendum. The deal has saved 1,900 jobs, but shareholders surely baulked at the “nominal sum” paid for the acquisition of shares.

The role of Conviviality in the UK market over the last five years can’t be underestimated – the company serves 10,000 customers and more than 23,000 outlets, with more than 2,500 people on its staff. Its customers included some of the leading names in the UK on-trade – among them, JD Wetherspoon and Slug & Lettuce. In its 2016/17 fiscal year, Conviviality’s sales nearly doubled to £1.56bn.

So where did it all go wrong? On the surface, Conviviality’s accounting oversights announced in March led to a vicious and inescapable cash drought, highlighting inadequate financial controls within the company.

But some reports have speculated that Conviviality’s troubles dated back a number of months, with talk of invoices having gone unpaid. Could it be that Conviviality’s rapid expansion through acquisition in a bid to be all things to all men didn’t pay off?

The group acquired Matthew Clark for £200m in 2015, followed by its £60m takeover of Bibendum in 2016. A swathe of other purchases elevated its position from cheap retailer to drinks goliath, spanning a number of categories, services and channels. It’s difficult even for drinks commentators to understand its multifaceted structure. With rapid acquisition comes complexity, and it’s possible that management didn’t do enough to rationalise this.

Furthermore, Conviviality’s investment in traditional off­-trade channels may have been unwise, considering the rapid growth of consumer spending online and in supermarkets.

While Conviviality Direct has been thrown a lifeline by C&C, it is unclear how the newly named Matthew Clark Bibendum will operate in the future. C&C said it hopes the deal “can put an end to this period of disruption and uncertainty”, but this seems unlikely. Will the company’s skew towards cider and beer impact its spirits and wine suppliers?

These are questions that will be answered in time, once the dust settles, with further consideration and analysis. What is certain is that an era has come to an abrupt and shocking end in the UK drinks industry.

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