Success in retail often turns on a sixpence and, in attempting to pull off that difficult manoeuvre, drinks specialist Conviviality careered spectacularly off course.
The one-time City darling, listed on AIM but at its peak higher capitalised than some retailers on the main market, imploded as it sought to make money on the tightest of margins by taking out costs after scooping up businesses such as distributor Matthew Clark in an acquisition spree.
Its demise was rapid. In the space of a few weeks it revealed a forecasting error, its shares were suspended as it emerged an unexpected £30m tax bill was looming, and now it seems destined for administration.
While the focus has been on the recent disclosures, it appears that Conviviality has been under pressure for some time.
Our own investigation into what happened, informed by well-connected sources, indicates that behind-the-scenes cracks were starting to show.
However, it seems that directors didn’t think they’d bring the house tumbling down.
“The pressure to take cost out was enormous and they rushed at it like a bull in a china shop,” one source told us about the integration of Matthew Clark and Bibendum.
“Fundamentally, the back of the business didn’t keep up with the front,” another source said.
And missed payments to Conviviality suppliers were viewed as a “weakness, not a burning bridge”.
Some investors, who believe they may have been misled about Conviviality’s performance, are now considering legal action.
Whether they are justified remains to be seen but, from what we know so far, the circumstances of Conviviality’s demise look more like cock-up than conspiracy.
“It was a model that other retailers saw value in, and a forerunner in some ways of Tesco’s tie-up with Booker”
Once again though, the value of ‘transformative’ mergers and acquisitions is brought into question.
Conviviality was seen as a trailblazer as, through its purchases of suppliers, it carved out share of the overall drinks market.
Its chain of Bargain Booze and Wine Rack retail stores seemed to be complemented by a wholesale arm supplying 23,000 on-trade customers.
It was a model that other retailers saw value in, and a forerunner in some ways of Tesco’s tie-up with Booker.
Conviviality’s failure is surely a reminder of the inherent risk in such deals.
While Conviviality’s directors may have chosen to take a glass-half-full view, in retrospect were investors equally guilty of over-optimism? Perhaps there was a warning in Conviviality’s fundamental numbers.
As one of our subscribers commented on our website: “To only make £22m on £1.6bn turnover is a massive issue.”
It’s a reminder that, when assessing the success of a business or a deal, while optimism of the will is a desirable quality, pessimism of the intellect should also always be applied.
Will big tech’s travails change attitudes to data sharing?
The big tech companies that have changed how everybody lives are no longer flavour of the month.
Such businesses, the ‘Fangs’, as they’re called – a sinister-sounding acronym of Facebook, Amazon, Netflix and Google – are increasingly in the firing line.
The Cambridge Analytica controversy at Facebook and another attack on Amazon by US President Donald Trump are symptomatic of concerns about the extent of the power wielded by the Fangs and their peers, concerns ranging from tax contributions to use of consumer data.
“The products and services created by the tech powerhouses are simply too useful and too much fun to be abandoned”
Any fall-off in use of Facebook and its ilk could have implications for retailers, which increasingly work in partnership with the new tech giants as they seek to adapt to changing consumer habits such as the uptake of social media.
That, it must be said, is highly unlikely. The products and services created by the tech powerhouses are simply too useful and too much fun to be abandoned.
However, consumers may well become much more careful about what data they share, and with whom.
As data increasingly informs retail decision-making, and the introduction of the General Data Protection Regulation (GDPR) nears, retailers need to ensure that customers trust them with their information.
The onus is on retailers not just to protect consumer data, but to use it with unimpeachable integrity.