Holland & Barrett has been acquired by little-known investment business L1 Retail for £1.8bn. What are the opportunities to develop the health and wellbeing specialist?

L1 Retail is the retail-focused arm of LetterOne, an international investment business founded in 2013 in Luxembourg.

A statement on the investment group’s website says its overarching goal is to “build a new portfolio of successful companies that are leaders in their fields and sectors”. Along with retail, its interests are the energy, technology and health industries.

LetterOne was co-founded by Russian billionaire entrepreneur Mikhail Fridman, and L1 Retail aims to invest up to $3bn (£2.36bn) in a selection of retailers which can become market leaders in their sectors.

To assess which retailers are blazing this trail, L1 Retail has bolstered its advisory board with former Home Retail Group chief executive and Interflora boss John Walden; founder of customer data pioneer Dunnhumby, Clive Humby; and former Lidl chief executive Karl-Heinz Holland.

L1 Retail is headed by managing partner Stephan DuCharme, non-executive chairman and former chief executive of Russian retailer X5, where he was responsible for “leading the strategic turnaround of the company to become the fastest growing public food retailer”.

Holland & Barrett acquisition

Holland & Barrett is the first retailer to be snapped up by L1, which fended off the interest of Superdrug-owner and international health and beauty titan AS Watson.

Planet Retail retail analyst Hanna Ryngmark says that the interest from an international giant such as AS Watson gives a good indication of the appeal of Holland & Barrett’s proposition.

“Because of the trends we’re seeing in health and wellness and the increased interest from consumers, they will have seen Holland & Barrett as a potential growth channel”

Hanna Ryngmark, Planet Retail

“The fact that AS Watson was part of the bidding game really shows how appealing this business is – any drug store operator would see the appeal of Holland & Barrett’s store format,” she says.

“The people on L1 Retail’s advisory board all come from backgrounds where they would look at potential growth channels in the market.

“Because of the trends we’re seeing in health and wellness and the increased interest from consumers, they will have seen Holland & Barrett as a potential growth channel when it comes to health and beauty specifically.”

The health food specialist operates 694 stores in the UK, including a smattering of its More stores, which offer a wider product range, an increased organic beauty offering and in-store experiences such as vegan nail bars and healthy snack kiosks.

Cash injection

Holland & Barrett chief executive Peter Aldis initially planned to roll out 50 More format stores over a two-year period when it was launched in 2015, but expansion of the format, notwithstanding its Marble Arch flagship, has not reached lofty heights to date.

However, a cash injection from L1 Retail could reinvigorate those ambitions and give the retailer’s UK store estate a health kick. 

“The Oxford Street flagship sets the bar for where their stores need to get to in future,” says Ryngmark.

“What is more important than the size of the store is the experience they offer – obviously that comes with space to a certain extent but even the smaller outlets could be a lot more service-oriented.

“Holland & Barrett has achieved 32 consecutive quarters of like-for-like growth without fully exploiting the ethical beauty market”

 

“Moving forward, Holland & Barrett’s store strategy should focus around improving existing stores and assessing whether their performance is driven by location or the store’s proposition itself.”

Aldis said at the opening of the retailer’s Oxford Street flagship in January that ethical beauty products would propel the retailer’s future sales, but conceded that “we’re nowhere near as sophisticated on beauty as we are on health products.”

Given that Holland & Barrett has achieved 32 consecutive quarters of like-for-like growth without fully exploiting the ethical beauty market, it is easy to see why the retailer has attracted interest from buyers.

Expansion potential

L1 Retail says it is interested in owning businesses that can be rolled out internationally and, on that score, Holland & Barrett is in a strong position.

It operates in 16 countries altogether through 1,150 locations including The Netherlands, Belgium and India.

The retailer also has a strong presence in China, where there are 34 franchised stores and an online presence on the TMall platform of Chinese ecommerce Goliath Alibaba.

Holland & Barrett has also enabled Alipay payment technology in its UK stores to monopolise on Chinese tourist spend in the UK.

In the first instance, Ryngmark believes that L1 Retail will most likely focus on bolstering the retailer’s presence in countries where it is already has a burgeoning store estate, but longer term, it could look at opportunities in under-penetrated European markets such as Germany.

Holland & Barrett has invested in expanding its multichannel proposition in recent months, including rolling out click-and-collect in the UK and launching in-store ordering.

Online proposition

However, Retail Week Prospect analyst Rebecca Marks thinks that the retailer still has a way to go in terms of its online proposition and that advice from an expert such as John Walden, who drove Argos’ digital transformation, could rev up its development in this channel.

Marks also believes that the retailer will be “sitting on loads of data from its loyalty scheme” and could do more “in terms of personalisation and market segmentation” both online and in-store.

However, Ryngmark says the greatest challenge and opportunity for Holland & Barrett’s online offer lies in differentiating itself from Amazon.

“Holland & Barrett might have an upper-hand on Amazon when it comes to organic beauty because they are a lot more trusted as a brand”

Hanna Ryngmark, Planet Retail

“At the moment if you want to go and discover something you might go to Holland & Barrett but if you know what you want and you want to buy [that type of product]  in bulk, you will get it from Amazon instead,” she says.

“However, Holland & Barrett might have an upper-hand on Amazon when it comes to organic beauty because they are a lot more trusted as a brand in terms of the products that they sell.

“That could put them at a real advantage, especially when it comes to expertise and product assortment.”

However L1 Retail decides to proceed, it looks like Holland & Barrett’s run of good health is unlikely to slow down soon.