Majestic: making headway despite headwinds

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing14 June 2018

Majestic Wine, the UK’s largest specialist retailer of wine, reported an annual sales increase of 2.3% today, driven by positive underlying sales growth of 11.3% at its Naked Wines division. However it warned that the UK market remained “tough” and could get worse.

With struggling retailers firmly in the focus of investors, shareholders welcomed the news that Majestic’s profit before tax had climbed out of the red to £8.3m compared to a loss of £1.5m last year. But the profitability of the company’s retail arm, which makes up about half of its revenue, was broadly flat.

Naked Wines, the company’s online, customer-funded wine business, has been a strong source of profit for Majestic since they paid £70m for it in 2015. Naked Wines’ customers (called Angels) pay a monthly fee to fund independent winemakers in return for discounted prices on their wines. It’s clearly the online cellar of choice for a lot of people and has proved a savvy deal for the company, enabling them to diversify away from their traditional stores to reach new customers in an ever-changing market.

Drinking habits in the UK are certainly changing. Firstly there’s fewer pubs than there used to be, creating opportunity for retailers like Majestic. Since 2000, the number of pubs in the UK has fallen by 17% - that’s 10,500 fewer pubs than there were 18 years ago, according to the British Beer & Pub Association (BBPA). However the rate of closures is now slowing down. In 2015 around 1,100 pubs closed their doors, but fewer than half that number closed in 2016.

That doesn’t mean we’ve stopped drinking though, we’re just choosing to drink at home. In 2014 the volume of beer sold in supermarkets and off-licenses in the UK beat the volume sold in pubs, clubs and restaurants for the first time. Over the last 18 years the amount of beer bought in supermarkets and shops has increased by 27%.

However we are drinking less often. According to the Office for National Statistics’ (ONS) Opinions and Lifestyle Survey 2017, the number of adults who had drunk alcohol in the week before being interviewed was at its lowest level since the survey began in 2005.

Teetotalism has also increased especially among young adults. Last year, 20.4% of people surveyed in England, Scotland and Wales said they did not drink alcohol, which is around 10.4 million adults and 2% more than when the survey first started. But the proportion of 25 to 44 year olds who say they do not drink has risen from 15.5% in 2005 to 20.6% in 2017, an increase of over 30% over that period.

Tastes are also changing. Sales of gins and craft beers have increased recently. Gin sales topped £348m in the UK in 2016, almost three times the £126m total in 2009 and there are now 2,000 breweries in the UK, thanks to the interest in craft beers. This is the highest number on record since the 1930s according to Camra. It is no surprise then to see beer and spirits on the menu at Majestic alongside its range of wines.

With the World Cup starting tonight and the barbecue season in full swing, brewers will be anticipating strong alcohol sales over the summer, whether their product is consumed in pubs or at home. A number of funds on our Select 50 list feature companies involved in the drinks business. Diageo, maker of brands such as Guinness and Smirnoff is in the top 10 holdings of the Fidelity Enhanced Income Fund, Lindsell Train UK Equity Fund, Liontrust UK Growth Fund and Fidelity Global Divided Fund, while Heineken appears in the Jupiter European Special Situations Fund, Janus Henderson Emerging Market Opportunities Fund and Lindsell Train UK Equity Fund. You’ll also find brewer Molson Coors in the Fidelity American Special Situations Fund and Anheuser-Busch maker of Becks and Budweiser in the Threadneedle European Select Fund.


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