Spar chief eyes up ownership structure while increasing shops

As a former finance director at Irish Distillers, Leo Crawford was more than a mite interested when Pernod Ricard moved last week to sell the Bushmills brand to its arch-rival Diageo.

But the boss of Spar in Ireland has little time these days for whiskey talk. Currently preoccupied with the sale of an off-licence franchise in England, he has a long-term eye on a likely change of ownership at BWG Holdings, which owns the Spar and Mace franchise in Ireland.

Three years after he led a venture-capital-backed €220 million management buyout of BWG, there is a certain logic to the sale of Bargain Booze, a franchise operator with 550 independently-owned stores. With retail sales last year of €484 million, the franchise could realise as much as €105-€120 million for the Walkinstown-based group.

Such a sum would be more than enough to clear BWG's debts of €90 million, a development that would line the group up for a smooth change of ownership in some time in 2007.

The five-year investment timeframe favoured by venture capitalists will have expired and Crawford expects his backers in British group Electra Partners, who own 65 per cent of the group, will want out by then.

"You've got be realistic in this thing and say that yes, in this day and age, it is likely that the shareholding structure in two years time will be different to what it is now," Crawford says.

An accountant by training and a Dubliner, he and his team own 15 per cent of BWG. The remaining 20 per cent is mostly in the hands of John Clohisey of Newhill Ltd, whose chain of 115 Spar stores was acquired for €45 million in the BWG buyout.

Stating that Electra's exit is simply not on the agenda at the moment, Crawford is not prepared to reveal whatever plans he has when that arises. His current focus is the Bargain Booze sale.

"We've just sent out an information memorandum in the last week. We would expect first round offers by early July. You get into a process then of due diligence. In terms of disposing of the business, I'd say the earliest would be late autumn and we'd be comfortable if the business was disposed of by the end of the year."

While Crawford won't discuss potential bidders, he sees the sale of the off-licence business as part of a natural focus on BWG's retail and wholesale interests. "Bargain Booze is a self-contained business within the UK operating in a different segment of the market. It's not core to what we're about."

BWG owns and operates 140 Spar and Mace stores in the Republic, 507 franchise stores and 26 cash-and-carry outlets. Its subsidiary, Appleby Westwood, has another 340 franchise Spar stores in south west England.

Operating profits grew 29 per cent to €48.8 million last year as turnover rose 11.2 per cent to €1.62 billion. "Overall it was a very good year for us," he says. "In Spar in Ireland our retail sales were close to the €1 billion mark. The actual figure was €960 million. We'd be very pleased with that. We're a year ahead of plan with respect to retail sales."

Although the group added 57 stores to the Irish network last year, it sees the pace of new openings slowing to 35 this year and continuing at that rate for some years to come.

Competition in the sector is dogged, but BWG aims to grow sales by opening bigger outlets under the Eurospar brand, whose store space of 7,000-15,000 sq ft (650-1,393sq m) is significantly greater than the 2,000-2,500 sq ft occupied by the typical Spar or Mace outlet. Already 27 Eurospar outlets have been opened and 10 of the 35 openings this year will be under that brand.

Still, Crawford acknowledges that the market in central Dublin has become very crowded. Thus the group sees the biggest growth opportunities in the city's commuter belt and at new apartment and estate developments.

"We'd still be optimistic about the future in terms of our expansion opportunities. We think that there's big opportunities particularly in convenience retailing. With respect to innovation and satisfying consumer needs, there's an interesting pattern in terms of consumer needs and consumer behaviour.

"I think expansion of the network is very important for growing this business. I would say that there's still a bit to go in this market place because lifestyles and demographics are driving the opportunities."

BWG has been a major beneficiary of a booming economy in which many busy workers are prepared to pay for convenience food and pre-prepared meals. With wine sales up 30 per cent annually and beer sales growing by 15 per cent from a very low base, the company also benefits from social changes which mean that many drinkers are happy to entertain at home.

But if all of that makes for happy days for Crawford in the run-up to the crucial period before Electra lines up to take a return from its investment, a new threat looms in the form of renewed interest in removing the Groceries Order, which prohibits below-cost selling of packaged groceries.

Like all others in the independent retail sector, Crawford is a fan of the order. He recognises that prices here are higher but says that is a function of Ireland's economic structure.

"In the EU, 12 of the 15 original member states have some legislation in respect of below cost selling. Apart from the UK, which is one that doesn't, the other two are Finland and Sweden," he says.

"If you look at the survey done by Forfás, which categorised the bands of price, Ireland was in there with Finland and Sweden. So I don't think there's any direct correlation between changing the ban on below-cost selling and prices. I think it's to do with the cost structure within the economy."

Recently appointed president of Spar International, Crawford has plenty of opportunities to assess the retail scene in 35 markets. He sees some validity in the argument that growth of branded retailers lends a certain sameness to the appearance of towns and villages but argues that quality and service is better as a result.

"I think we're servicing the consumer very well in terms of what we're offering them. I don't think it's such a bad thing to have high-quality convenience stores in every rural town. Even though they might be Spar or some other symbol, I don't think that would be the end of the world."

It would be the end of the world for Crawford if they weren't there.