Fionnuala Carolan sat down with Stephen O’Riordan,
CEO of Londis, to discuss how the company has navigated the downturn and is now open to possible acquisitions
Mar 12 2012
Stephen O’Riordan has seen a lot of change in the business since he joined the group some 12 years ago. A chartered accountant by trade, he trained with Ernest & Young in his hometown of Cork. In 1999 he took an opportunity to work for the Rehill family who owned Tedcastle Oil. This was just at the point that this company was developing an alliance with ADM Londis to create Londis Topshop, the beginning of the growth of forecourt convenience retailing in Ireland. ADM purchased Tedcastle Oil from the Rehills in 2003 which led O’Riordan into his current role. During his tenure he has experienced the largest boom and subsequent bust the Irish grocery industry has ever seen.
How is the company faring at the moment? What are your results like?
Our like for like business for the last nine months of last year was less than 1% down on the previous year despite the first quarter being difficult. Given what’s been going on with even the biggest players we are very happy with that performance and it shows our retailers are really actively competing out there and offering value to the consumer.
Over the course of the year, we could see from the Nielsen data that ADM Londis retailers gained more and more momentum as the year progressed, performing 2.7% ahead of the convenience market over the last 12 weeks of 2011 which accelerated to over 4% ahead in the last four weeks of the year.
When was the most difficult period for the company over the past few years?
I think probably 2009 and by way of background to that, the whole industry had over expanded and each symbol group was opening over 40 stores a year on the back of breakfast roll man and a building boom that no one saw ending. When the downturn came it was clear that the country was oversupplied with shops and especially those that were reliant on more houses being built around them were not going to be sustainable and pay the high borrowings that went with them because of the property prices at the time. We took early and decisive action to cut credit lines on stores we knew were struggling or were not going to make it in the long run. We took that action as early as late 2008. It was difficult for the company in terms of turnover but it was actually the key decision that has maintained profitability throughout the whole process.
Did most of those shops eventually close?
They would have. There is a concern that there may have been some element of passing around of credit risk between various players in the industry which I think is a concern and some may still be floating out there. I think there is still a degree of oversupply of shops but we’ve addressed our estate and I think we see it happening elsewhere now. For the good of the sector long term, that needs to accelerate so the recovery can start and the business can flow back to the better positioned stores in each locality.
Did you not think a ceiling would arise when opening up to 40 stores a year?
It was a bit like the property boom. People expressed concerns but maybe not loud enough at the time. Certainly in this sector, the observation may have been made that there were too many shops out there. I think we all sought comfort in the term ‘soft landing’ that was being bandied about at the time and I don’t think anyone foresaw the severity of the general economic recession in the country.
Keating’s Londis Plus in Cobh, Co Cork, was named ‘Business of the Year’ by Cobh & Harbour Chamber of Commerce in 2011. The Londis Plus brand reflects the larger store offering from the group
How many store openings are you expecting this year?
Store movement has quietened down a lot. There isn’t as much movement between groups as operators are looking at their own business and maybe are somewhat risk averse in terms of taking on credit risk as are we. We are looking at high single digit or low double digit in terms of store recruitment this year. Any new stores would have to be based primarily on location. For a country that is overshopped you’d have to be very fussy about where you open.
We are lucky that we have a strong core of retailers that didn’t extend themselves during the boom so our core business is performing very well. Londis currently has 250 stores.
What percentage were retailers really down from the height of the boom?
I’ve heard various figures but 25% wouldn’t be too wide of the mark. A certain proportion of that is being given in lower prices. People are shopping on promotion more so a lot of that fall comes from that. There is a combination of a lack of consumer demand but also the price of what we’re selling to the public has reduced substantially and is often overlooked in those comparisons.
When we spoke to you in 2007 you said Londis was in acquisition mode. What mode would you say Londis is in now?
I think the climate is probably more suited to acquisitions at the right value now than it was in 2007 when values were at their peak. I’ve no doubt that there will be consolidation in the industry and I very much think that the prudent financial decisions we’ve taken over the last number of years has put us in a strong position to take advantage of the right opportunity but it has to be right in terms of price, growth potential and synergistic value. It won’t be an acquisition for the sake of an acquisition. Our banks have expressed their interest in supporting us on the appropriate acquisition so we remain on the look out. We’ll see what opportunities arise.
Chris Donnelly, head of IT at ADM Londis with Stephen O’Riordan demonstrating the use of the iPad as part of the shift to e-retailing last year
There has been huge technological advancement in the company over the last year. Has this created a buzz around the brand?
We have received a lot of coverage over the last six months due to the iPad rollout but we are coming towards the end of a five year strategy. We identified a number of years back that technology was going to be key to developing our retail business. ISIS in an intelligent ordering portal with category management capabilities and it’s had a great impact in helping our retailers improve their on-shelf availability. It’s already shown in the stores that have embraced it, that their retail sales are performing better as a result which is central to the whole theory and the iPad just brings it all to the shop floor and means that the retailer doesn’t have to spend time administering their business from the back office. They can do what they should be doing and what they do best, which is retailing. The iPad is now being used by 75/80% of our shops at the moment. I think more and more people will be using tablet devices in the future.
You are planning to launch your chilled distribution facility later this year. Can you tell us about this?
We’re launching our chilled distribution process in June following a two year trial in 23 stores that has been very successful. We believe ISIS is central in being able to deliver that. This is the last piece in the jigsaw. We’re doing the chilled on a variable cost model so we’re not going to invest millions of capital expenditure which means we’ll be able to give our retailers the product at competitive prices to make sure they can earn a margin and compete effectively and remain profitable. At the core of all this we are a group owned by retailers for retailers so effectively the retailers’ profitability is our first priority.
What will this development mean to the retailer?
It will mean that they can get their chilled delivery through us up to three times a week.
In phase one it will cut out 20 deliveries from the store down to one and over the entire project it could cut out over 100 deliveries a week into one. So there are all sorts of efficiencies that go with that in terms of merchandising, in terms of back office paperwork, following up credit claims etc.
Value is so important. How do you keep cutting costs?
We had a lot of support from Irish suppliers, our Nisa alliance in 2009 was very important in improving our buying power and competitiveness, the centralisation of our ambient warehouse to take costs out of the supply chain and ISIS. All of those factors allowed us to buy better and to pass on lower prices to our retailers.
I think there are a few factors that are going to help retailers because I think price has become central to consumers’ decisions now. Recent reports are suggesting that consumers are now shopping four or five times a week rather than doing one weekly shop. In the UK there is some evidence to suggest that people have shifted back to shopping locally because they don’t want to pay for the fuel to visit the big out of town retailer and don't have the cash to do one high value shop one day a week because some of it can end up in the bin. So if we have well located Londis and Londis Plus stores, they’ve already adapted to competing very effectively on price and they can give the consumer a more personalised and local service so there are advantages in what has happened in the market place but certainly we need to be able to compete on price. That’s the primary decisive factor for consumers.
How do you police the retailers who buy outside the system?
We have an advantage over other groups there because we are retailer owned and our profits are not directed towards a bank or paying down debt. Our ethos is all about passing on value to our shareholders so we have always had that as an advantage in terms of having retailer purchasing loyalty in the group. We were able to counteract things like cross border purchasing at its peak with our Nisa alliance so that helped and we find that we probably have more loyalty from our retailers now rather than less.
What are your thoughts on the minimum pricing of alcohol legislation debate and the possible exclusion of alcohol from certain outlets?
My main issue with minimum pricing is that it’s going to increase the cost to the consumer and the whole debate about the sale of alcohol is not about the legitimate sale of alcohol, it's about the misuse of alcohol and I think the debate needs to focus there. Our sector through the RRAI [Responsible Retailing of Alcohol in Ireland] is doing an awful lot of self regulated work to make sure we are taking a responsible approach to selling alcohol and I think the last report made by that group to the Department of Justice showed 84% compliance which shows it is working. Alcohol sales are a substantial proportion of the business – often getting into double digit figures. We hear a lot about the jobs initiative and the export market but consumer demand is the biggest concern for the retail industry and to do something draconian like ban alcohol from stores would be lunacy at the moment economically for both the state and for the SME sector.
Investment across the industry is estimated at €200 million if structural separation was implemented and that’s a burden the industry can’t afford to carry. I believe there will be a sensible approach taken and the focus put on the misuse of alcohol and not the price of it.
Will the retail size cap have a real effect on smaller retailers?
I think the Irish market is very saturated at the moment and I don’t think that the cap that is there is any barrier to new entrants or competition and you only have to look at the Sunday newspapers to see the level of competition in the sector. I don’t think pushing even more of the trade towards big box retailers is good for consumers in the long term because if you end up closing the local Irish independent retailers, it is effectively long term eliminating competition for the larger operators at which point the consumer is ultimately going to lose out so I do think the cap is important. Abolition would be a mistake long term for the consumer.
I don’t think Ireland is a big enough market for a major international player because subdued demand isn’t very attractive.
What shape will the retail landscape be in over the next couple of years?
It’s going to remain tough for the next three to four years and any growth will be through acquisition. As far as we’re concerned we feel like we’re competing well. We’ve addressed our cost base and our non-performing stores and our balance sheet is in a strong position so we’d see ourselves as being optimistic subject to the wider economy. National consumer demand is probably the biggest concern. At the end of the day the grocery industry has been and remains a great business to be in.
- 1954: A co-operative founded by a group of 100 grocers is called Allied Dublin Merchants Ltd (ADM Ltd).
- 1970: ADM Londis Ltd acquires the use of the Londis franchise for Ireland.
- 1975: ADM Londis Ltd opens a distribution warehouse in Johnstown, Naas, Co. Kildare, to reflect the expansion of business outside the Dublin area and changes its name to Allied Distributive Merchants Ltd.
- 1995: ADM Londis Ltd purchases the Londis brand name exclusively for the entire 32 counties.
- 1998: The company forms an alliance with Tedcastles Ltd to promote Londis Topshop as a retail forecourt brand for stores of less than 2,000 sq ft.
- 2003: Amalgamation of ADM Londis and Londis Topshop with a combined total of nearly 350 stores.
- 2004: In October of this year ADM Londis changed from a co-operative to an unlisted plc.
- 2005: The Griffin Group leaves Centra to join Londis. Six stores grows to 18 and increases Londis’ presence significantly in Dublin city centre.
- 2007: ADM Londis plc builds a head office at Johnstown, Naas, Co Kildare, to house the Group Support Office and 90,000 sq ft warehouse and distribution centre on one site.
- 2008: In April the company announced it is strengthening its nationwide forecourt presence following an agreement with Texoil, Chevron.
- 2008: A dispute with Duffy/Donovan group is settled in court in Londis’ favour.
- 2009: ADM Londis reaches agreement with the large UK wholesaler Nisa Today's to source a range of branded products and a private label range.
- 2011: The group announces it is giving iPads to all Londis retailers at its annual conference in order to maximize usage of its ISIS portal ordering system.