Two years spent overhauling Musgrave’s British arm means it can now rise to the challenge of the big four, Phil Smith tells Charlotte Hardie

Phil Smith, Musgrave

When newly appointed managing director Phil Smith walked into Musgrave’s British head office two years ago, he had his work cut out. After leaving the lottery world of Camelot for the convenience retail sector, he was charged with spearheading a reinvigoration of Musgrave’s British business, which owns the franchised brands Budgens and Londis.

The overhaul couldn’t have come soon enough, given the supermarkets’ renewed assault on the convenience sector. “It’s been hard work, but we’re now able to do things we just weren’t able to in the old organisation,” Smith says.

That hard work has involved a complete investment into and overhaul of much of the existing business infrastructure, including the finance system and supply chain systems and warehouses, which have transformed the way the business operates.

Since he joined, Smith has also been responsible for overseeing a number of key appointments. As a result, sitting around Musgrave GB’s boardroom table is nearly an entire set of fresh faces, many of whom have hailed from some of the largest retail multiples.

They include trading director Willie Hamilton, who was commercial director for Tesco Express, finance director Julie Wirth, who left Home Retail Group as director of group finance, and marketing director Jemima Bird, former Co-operative Group director of brand.

As a result of the entire team’s reinvention efforts, Smith says things are looking up for the British business and its Budgens and Londis brands. Some might assume that the recession spells a difficult time for the convenience sector because many shoppers believe it is easier to budget for larger supermarket shops and there are more bargains to be had. In reality, though, it is the reverse.
Convenience is still outgrowing the grocery sector because people are shopping locally. “By shopping around they can get the best deals,” says Smith. “People are shopping more often -
little and often. They see it as a way of saving food waste and they’re saving on petrol miles.”

He adds that the surge in popularity of discount grocers Aldi and Lidl has also helped because UK shoppers now realise they do not need to do all their shopping in one place.

That said, the most recent financial results for Musgrave Group as a whole were far from sparkling. In May it announced annual pre-tax profits were down 20% to €75.5m (£67.9m). However, these figures include its Northern Ireland and Republic of Ireland stores such as SuperValu and Centra. Not only is the Republic of Ireland’s economy in a far worse state than the UK, its retail sales are being heavily affected by the problem of cross-border shopping in the south.

Future challenge

For Musgrave’s stores in Great Britain, Smith says trade has been significantly better. “Londis is 1% behind the market but we’re focusing on putting ourselves ahead,” he says. Budgens’ sales, meanwhile, grew by 45% - although this is largely because the figures include the sales from 13 former Co-op stores it acquired.

However, there is an added challenge for Musgrave that lies ahead.

The grocery giants have been quick to capitalise on the burgeoning convenience sector. In June Sainsbury’s announced it was to reinvigorate its expansion into the convenience market and open 150 of these small-format stores within the next two financial years. As its convenience director Dido Harding said: “It’s still not a consolidated market. A lot of the growth opportunities for Sainsbury’s are there because we didn’t take advantage in the 1990s.”

One of the features working in our favour is local markets

Phil Smith, Musgrave

Smith admits the big four’s continuing push into the convenience market is new competition. “Of course it will get tougher - there are economies of scale that the multiples can leverage,” he says. But heis also confident that Budgens and Londis will stave off the competition.

Aside from pointing out that the Musgrave Group is itself a e7bn (£6.02bn) business, he adds: “There is absolutely no substitute for local ownership as well as management. People care because it is their business.

Certainly for some of the multiple convenience stores it’s far harder to exert that discipline.”

And while the big four have suitably big marketing budgets to promote their convenience store offer, Smith says: “One of the features working in our favour is local markets. We’re able to exploit the power of the community.”

He points to Andrew Thornton, owner of the Budgens store in Crouch End, north London, as a case in point. Much has been written about how his store is a success - despite being within spitting distance of a Tesco Express.

Independent appeal

Thornton is particularly keen to let local shoppers know that his store is independently owned rather than part of a large corporate enterprise. His initiatives have included a “Pennies for Plastic” appeal, with the store donating every 1p for each bag not used at his store to a local charity. That said, continues Smith, growing competitiveness in the convenience sector has also meant Musgrave has “made it clear to our retailers that the bar has to be raised”.

So what are the challenges that lie ahead for the brands’ retail partners? “The issue is about making sure people don’t stock the stores on autopilot but are offering something that is right for shoppers’ needs,” says Smith. “It’s about making sure they are stocking fresh product and it’s well promoted to customers. In tougher times we need to be absolutely clear on what customers are looking for. It’s about making sure the stores are strong, robust, have a good reputation and are offering good value for money.”

To that end, Musgrave has launched a Good Value range across Budgens and Londis with 46 fresh and ambient lines. Retail partners are also being encouraged to tighten up the promotions, focusing more on half price and meal deals. Budgens is also relaunching its own-brand offer for 680 product lines.

Last month, a raft of £1 promotional offers on fresh produce successfully boosted Budgens’ figures. Sales of £1 packs of grapes increased by 550% and potatoes by 250% over three weeks.

At least five items of fresh produce will be available through this deal every three-weekly promotional period and flagged up on consumer leaflets. The success has meant the promotions have also been introduced into Londis stores.

Musgrave also recognises the importance of standardisation across its stores. It has launched, for instance, the Brand Essentials overriding discount scheme in its Londis stores. “Effectively, we’re asking retailers that if they subscribe to our processes there is an additional 2% overrider to be earned on purchases of provisions, groceries, alcohol and confectionery through Musgrave,” says Smith. To gain this discount, retailers need to commit to certain “brand essentials”, such as refitting their store to approved standards, purchasing “must-stock” items and participating in promotional schemes.

In addition to the sweeping changes already implemented, Smith clearly has many more in the pipeline. “We have been undergoing a massive change programme that I can’t underestimate, and I’m told it is a pretty unrecognisable business to that of three years ago, but we still have some way to go to ensure we are truly efficient.”

Smith is no newcomer to grocery retailing, with previous roles that include Kwik Save trading director in the late 1990s and Somerfield group marketing director. While he may have rejoined retail just before life started to get tough for the sector, he doesn’t regret leaving Camelot. After all, he laughs: “The lottery is easy at the moment. It’s far better to have a challenge.”

Musgrave marketing reinvented

Before marketing director Jemima Bird arrived from the Co-op in January last year, the business’s marketing function was basic, to say the least. It comprised of little more than the trading teams devising ideas for in-store deals, and this being communicated to customers via leaflets in stores. “Previously, it was just about printed offers rather than thinking about it strategically,” says Bird. “But now the strategy is far more comprehensive and includes brand communication, brand development and the all-important consumer insight.

Bird says consumers walking into Budgens or Londis stores today will be aware of a “significantly higher sense of value” than a couple of years ago, now that the business is promoting its value message and has introduced measures such as competitor price-matching.

“There is also a far greater focus on seasonal communication - be it around Mother’s Day or Easter. “People can go into their local store and they know there will be an offer there that is comparable with the multiples,” she says.

Musgrave’s marketing team has the challenge of getting its message across while competing with not only the big four’s push into the convenience sector, but also their sizeable marketing budgets. Bird says: “If we can get to a standard where customers’ experience at all of our stores is as good as at the multiples, then that’s when the local factor comes to the fore.”