Saturday, 21 November 2009

2,000 jobs go as more First Quench stores shut

Now you can't even drink yourself out of the recession

Threshers is quickly disappearing from the British suburban landscape with the closure of another 381 stores.

First Quench are one those elusive companies, which sit in the background quietly managing popular high street names - in this case Threshers, Wine Rack, Haddows and The Local. The first us ordinary folk hear about them is when the go bust or do something amazingly crass, like sell mortgages to people who can't afford to repay them thus sparking a global financial meltdown.

In the distant past, First Quench was owned by a very familiar and comforting name - Whitbread. Whitbread conjures up images of frothy beer in the 1970s and beer skittles with Fred Trueman. The subsequent history of the company, however, is one global corporate machinations. The tale is a familiar one in terms of the development of corporate capital, even though the mantra from the main political parties these days is the private knows best and that the market will resolve all life's problems. The reality is somewhat different, but a well-rehearsed story of merger, take-over, restructuring and job losses.

Without laying it on thick, it was Marx who first observed the tendency in capitalism for businesses to merge and increase their size. Their objective, he argued, is not to be competitive, rather it is to produce the opposite conditions - to monopolise the market and kill off competitors. Hopefully you can see that this runs counter to popular opinion that unregulated free-markets promote competitiveness and innovation.

Merger and intrigue

The short life of First Quench Retailing can be traced back to 1998, with the merger between Whitbread's Threshers chain and Allied Domecq (Victoria Wine to me and you. This brought together 1470 retail outlets - including Thresher Wine Shop, Drinks Cabin, Wine Rack, Huttons, Victoria Wine Cellars, Haddows, Martha's Vineyard, and The Firkin - under one umbrella company.

The clear aim of this strategy is similar to that of Starbucks. It is called 'crowding-out' - replacing every booze/coffee provider in a neighbourhood with a sole supplier, until there is simply no room left for local or independent retailers to operate. In this way a single company can establish control over a network of local monopolies. Such retailers will argue they have to do this in order to compete more effectively with even bigger companies, such as Tesco, who can use their shear size to buy supplies in bulk and drive down the unit cost of products in order to undercut competitors on price. Consumers may get cheaper booze, but they end up buying it from a limited range of suppliers.

Corporate Irresponsibility

But isn't just a story of neighbourhood change. What happens on the high street is explicitly connected to a system of global operations and decision-making.

Business mergers are no longer confined to regions or individual states, they occur on a global scale, facilitated through a menageries of equity or holding companies which comprise the international financial system. And so, there are much bigger companies out there, who are not just interested in controlling individual neighbourhoods, rather their goal is to monopolise whole continents. Consequently the story of First Quench enters the murky world of the City and the international financial system.

Just one year after the initial merger, Allied Domecq sold their 50% share to the notorious pub-co Punch Taverns. In 1991 Whitbread purchased the Peter Dominic Group from Grand Metropolitan for £50m, bringing the Bottoms Up brand into the group. Grand Metropolitan manages a portfolio of luxury brands and companies - diamonds, jewellery, liquor, tobacco, fashion, golf and nightlife across the world. They are like the Alan Whicker of portfolio managers - so understandingly Thresher didn't quite fit this image of exclusivity. Interestingly although Grand Metropolitan are based in California, the company claims to the lineage of The Group dates back to aristocracy of Brittany, France in the Middle Ages!

The Peter Dominic Group, now a separate retail division, disappeared from history, purschased by a Japanese private equity group - Nomura Holdings in 2000 for £225m (Nomura recently bought the failed Lehman Brothers bank).

First Quench, however, was then purchased by the London based Terra Firma Capital Partners in 2002. Threshers then expanded further - purchasing 370 outlets from the failed company Unwins. 170 shops closed and the rest were rebranded into three market niches - 'The Local', 'Thresher' or 'Wine Rack'.

This expanded group then became attractive prey to other equity companies - and so the whole group was sold to Vision Capital in 2007 for £250 million. Notice how after each transaction a zero seems to be added to the value - making some people very rich indeed.

Threshers Group then became First Quench Retailing, with it head office in Welwyn Garden City. But just two years later the new owners put First Quench into administration, closing over 700 stores with some 4000 people losing their jobs.

Vision Capital are one of those companies who don't actually seem to make or do anything. Rather, they manage portfolios, including the aforementioned Terra Firma, Northern Foods, Bridgepoint, AEA Technology, Legal & General, Credit Suisse and Deutsche Bank.

Vision Capital's intention is to buy up 'mature' companies and 'Build stronger companies and create competitive returns for our investors'. They do this by:

- developing a clear strategy for each business

- building and re-energising management teams

- ensuring that operating plans are executed

- reducing and managing risk

- injecting investment capital to support each company’s strategy and optimise its balance sheet

- making follow-on acquisitions and disposals.

In others words they are interested in asset stripping and restructuring. Vision have absolutely no interest in your local outdoor and providing you with a cheap four-pack for Dave's party. Their priority is the capital value of the whole business, and more importantly the property assets they now own.

At times of crisis this is what capitalism does. It transfers capital from businesses which make things and provide services, and transfers that investment into less risky investments, such as property. You might be thinking the property market is depressed and this strategy makes no sense, but these companies operate on a different scale in terms of space and time, thinking globally and anticipating future trends. They are quite happy to sit on property and land assets for decades before realising a return, with additional zeros always added to the value. The human costs of this though are huge, with your local local high street going into decline and people losing their livelihoods.

The people who run these global investment groups simply don't share the same moral perspective of ordinary folk. They are remote from the impact of the decision they make. Their primary concern is making as much money as possible for their investment backers. The rules of the market simply don't apply. Supply and demand as we might know it, is undermined by the actions of these huge corporate entities who pay no heed at all as to whether people in a particular community wish to have an off-license in their neighbourhood. The wishes and demands of individual consumers hardly come to it.

As know from the credit crunch, it is also very difficult to regulate and control the international financial system. It operates nowhere and everywhere, beyond the reach of any single national government. The companies which make up this system pretty much do what they want without fear of retribution.

But here we are with the three main political parties in the UK advocating private and market led approaches in all aspects of everyday life - from education, public transport, health to waste collection and beyond. But the reality is that we begin to expose services we rely on to the same kind of global investment activities which led to the end of Threshers. People might remember, for example, how 100s of local authorities lost millions of tax-payers money because the Thatcher government encouraged them to hold equity funds with the bank BICC. Unfortunately this went bust and so your local nursery or care-home had to shut. A similar thing has happened to Universities recently, with many holding funds in an Icelandic bank which also went bust. These universities have lost millions are now cutting back spending one education facilities and getting rid of staff.

We might be able to live without local access to cheap booze, but we certainly we would miss access to cheap/free health, education, or transport.

But this is the direction we are going in - following a pernicious mantra that the public sector is all bad and couldn't manage a piss-up in a brewery, whilst the private sector has all the answers and never makes mistakes. Remember this when you pick up your P45 on the way out.

Footnote: there's always a bigger fish

Allied Domecq were themselves taken over by Pernod Ricard, a French company established in the early 1970s, which operates a global network (Italy, Ireland, Cuba, Australia, Asia), around a core business of wines and spirits, including many Irish and Scottish distilleries.

Pernod Ricard, however, are simply another company owned by a bigger holding company - Fortune Brands (who also own Beam - Jim Beam, Courvoisier, Teachers etc). It would seem that there is always a bigger fish.


2,000 jobs go as more First Quench stores shut -
Crain's Manchester Business

1 comment:

Padmanaban said...

Really a useful blog for everyone. Most of them are looking for high paying jobs. There are lots of job openings since many companies are in need of smart employers with adequate knowledge

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