Building the brand
Leo Crawford is group chief executive of the BWG Group. This month he sat down with Fionnuala Carolan for his first trade interview in many years and there was plenty to talk about. While BWG Foods has just come through a debt restructuring programme with the banks, which Crawford refers to as an 18 month distraction, he says he is now poised and focused on growing the company over the next five years
18 February 2014 | 0
I caught Leo Crawford on a good day. Well that’s what he told me but I imagine that most days are a good day to catch him as he’s extremely engaging and has an undeniable passion for the Irish retail industry, describing it as part of his DNA. The reason for his sunny disposition was due to an announcement that morning that the Joint Labour Committee (JLC) pay structures would remain equal for all retail outlets and there would not be a higher rate applied to symbol group retailers as had been feared. While he would still like to see the JLCs completely abolished, he felt like this was a good result for now. “There are two elements to it in that we did get the win in that symbol groups are going to be treated on a level footing with independent stores but I guess we support the RGDATA view where they are saying that JLCs should be obsolete in terms of the overall industry. I guess we won one battle but there is still the war to fight.” The argument against JLCs is that they are uncompetitive and outdated as they set wage rates higher than the minimum wage for certain sectors.
Spar International and Ibec
Crawford is a very well-known persona in the Irish grocery industry and his profile has been heightened in recent years through his position as president of Spar International since 2005. Spar now operates in 36 countries worldwide with 12,000 stores and annual retail sales of €31.1 billion. He is the first Irish person to hold this position. “I chair the board and Gordon Cambell is the managing director so there’s a strong Irish influence,” he says. “The national expansion of the brand is what the board looks at very closely. We’ve made very good progress in China and Russia. We’ve now gone into the UAE as well.”
In 2010/2011 Crawford served as president of Ibec, the representative body for business and employers in Ireland and he continues as a member of the board today. The day job involves overseeing BWG, a company operating more than 1,000 symbol stores across Ireland and Britain, including Spar, EuroSpar, Mace and XL. It also runs a wholesale business with a chain of 23 Value Centre cash-and-carry outlets and a wine and spirits business. In the UK, BWG owns Appleby Westward, the operators of the Spar franchise in the Southwest of England. There are about 20,000 employed throughout the entire business.
It’s no secret that the retail market has faced some really tough years and while Crawford readily admits that they felt the pain as the commercial property market was decimated and consumer spending nosedived, he says that BWG Foods is in a good position today. In November, BWG finalised a debt restructuring plan with the banks which resulted in an estimated €100 million being wiped from the group’s property borrowings. The company, which had debts of about €300 million before the restructuring, has finalised a five-year arrangement with its lenders Bank Of Ireland, AIB, Ulster Bank, Bank of Scotland (Ireland) and Blackstone.
Crawford is not only Group CEO of BWG but a joint owner of the business since he led the management buyout from Pernod Ricard in 2002 with BWG’s property director John Clohisey and its finance director John O’Donnell, in conjunction with Electra Partners Europe (since renamed Cognetas and now Motion Equity Partners) and consequently they bought out Electra in 2006, but more on this later.
The three partners are said to have provided warrants over a portion of the company’s equity, believed to be up to 75% in recognition of the property debt write-off from the banks. A statement released by the company in November said: “BWG is pleased to confirm that it has agreed a refinancing with its existing lenders that has secured a new five-year banking facility, which includes a restructuring of the group’s property-related debt. The agreement positions the business to further capitalise on its leading position in the convenience food sector and build on the strengths of its Spar, EuroSpar, Spar Express, Mace, XL symbol brands, and its cash-and-carry and food service business.”
Suffice to say Crawford was keen to talk about the future and not dwell on the details of the restructuring deal. “I’m not thinking about the banks anymore. That’s sorted. It was an 18 month distraction. We’re into a new reality now. The Celtic Tiger is long gone. We had double digit growth for years. You’re not going to see that again. It’s an extremely competitive market and all my competitors are looking for top line growth too. We’re all going to have to fight to get a small piece of growth. How do you do that? You innovate, you differentiate and you leverage your brand.”
Despite the tough trading environment over the past five years, BWG made some shrewd investments. In 2012 the company opened a €20 million, 240,000 sq ft distribution facility in Kilcarbery, west Dublin. In the same year BWG Foods announced a €50 million supply chain partnership with Donnelly Fruit & Veg resulting in the establishment of a new nationwide supply chain for the Group at Kilshane Cross in Dublin. The exclusive three year partnership sees Donnelly’s manage the supply of chilled and fresh produce to all Spar, EuroSpar, Mace and XL stores across Ireland.
In the same year, the group also completed the purchase of Morris Brothers, a wholesale business worth about €30 million, in order to strengthen its existing wholesale operations, especially in the Donegal, Sligo, Cavan, Mayo and Roscommon region and provide the group with increased buying power. BWG’s last acquisition before this was in 2008 when the company acquired Mangans Wholesale in Ennis.
Figures are encouraging
While they have invested heavily, the company is happy to report that it was only 0.1% behind the market place last year. “In 2013 our sales were €984 million – just short of a billion. In 2012 they were €988 million so we’re down just 0.4%. If you ask me what is the state of the overall grocery market, I’d say at best it was flat but with marginal growth and I’m very pleased with that performance in the context of where we operate with the likes of Aldi/Lidl seeing double digit growth. Appleby Westward’s wholesale turnover was £33 million so when I change that into euro it gives us our group figure of €1.15 billion turnover. All in all I’d say that 2013 was a very satisfactory performance in terms of turnover.”
Crawford says that an area of the business that is often overlooked in the cash and carry wholesale division. There are 23 Value Centres around the country and the split in terms of retail to wholesale is two thirds to one third. “Our retail sales were €665 million in 2013, played €669 million in 2012 and then coincidentally the wholesale was €319 million in 2013 compared with €319 million in 2012. Given the market that we’re in, we’re gaining share because I would say the overall cash and carry market declined in my view.” Value Centre services the 257 XL stores, a brand which he describes as “suiting the relatively small independent retailer that needs to have a fascia but is probably not large enough to be part of a symbol group because of the advertising fees and fit out costs.” He says there is a really strong team in Value Centre led by John Moane and last year the company reinvested in the Castlebar branch which was a great success.
The company will record a net increase in the number of stores across its portfolio of brands this year. The total number of stores in the group, including Appleby Westward in the UK, was 1,187 at the end of 2013 versus 1,166 at the end of 2012.
Growing up years
So how does one end up in the position of group CEO of BWG? Crawford has had an interesting career progression to date considering he left school hoping to be a teacher. Originally from Marino (now living in Howth), he ended up studying business at Trinity College Dublin after failing the oral Irish in the Leaving Cert which dashed his hopes of going into education (although he did lecture in business in later years). He completed his degree and consequently joined Irish Distillers in 1980 on a graduate programme. This was where he first met Willie O’Byrne, BWG’s managing director and they worked together for a number of years. After a short stint in the accounting division, he got an opportunity to move to sales and marketing which he says ‘floated my boat’ and opened his eyes to brands and managing brands. BWG was then a small part of Irish Distillers and Irish Distillers was bought by Pernod Ricard in 1988. This was a positive development for Crawford’s career. He says: “The one thing about Pernod Ricard is that they tend to back youth because I was appointed finance director at the age of 31. It was a great opportunity for me.”
In 1991 he was asked onto the board of BWG, as a non-executive director. “It was an exciting business and exciting people around the board table as well. Pernod Ricard were very good at succession planning. In my review I said I wouldn’t mind getting involved with the BWG side of the business and within a month I was appointed as managing director.”
Crawford was managing director of BWG foods from 1996 until 1999. It was a steep learning curve for him. “I remember when I came to BWG foods – it was a big, big change for me coming from a drinks business with good margins and good brand budgets to what would be seen as a traditional wholesaling business – a tough business with high turnover and low margins so it was a bit of a shock to the system.”
He also took management technique inspiration from his seniors in Pernod Ricard. “The term that Richard Burrows (joint managing director of Pernod Ricard) always used which has stuck with me is: ‘You’re given autonomy but the flip side of that is that you have accountability’. His style of management is something I have tried to replicate. You don’t get too involved with the nitty gritty of what people are doing, you let them go and do it but you have to intervene if things aren’t happening.”
In 1999 Crawford was appointed Group CEO of BWG and in 2000 the group bought a company called Bargain Booze in the UK and due to his background in the drinks industry, it was a business he took a great interest in and was one that would benefit him financially in the long term.
When Pernod Ricard put BWG up for sale in 2002, Crawford spotted an opportunity to lead a management buyout of the company. The deal was completed for €220m backed by UK private equity firm Electra Partners, which took a 65% stake in the business.
Crawford explains: “What Electra decided to do was to bring value to themselves; they wanted to hold on to this business here and Spar in the UK and dispose of a lot of other businesses including Bargain Booze. It had been purchased as part of the buyout from Irish Distillers at roughly €25 million and in the end it was sold for around €90 million. That was of great benefit to Electra but the management team would have done reasonably well out of that as well.”
Then in October 2006, Triode Investments Ltd, a property company controlled by Crawford, John Clohisey and John O’Donnell completed the purchase of BWG Group from Electra for €390 million.
Rather than feel nervous at such a massive investment, Crawford says he was confident he was making the right move. “To be an owner of a business is a dream for a guy who wanted to be a teacher! I felt I’d a good knowledge of the business. It’s part of my DNA; it’s part of what I do so it was really exciting.”
At that time the Irish economy was growing at a phenomenal rate so it was a great time to be in business. When the economy suddenly crashed in 2007, things changed quickly and they had to perform some rationalisation on the business in terms of staff and amalgamating a number of cash and carries, and in turn concentrate on their core retail brands like Spar and Mace.
EuroSpar and Spar Gourmet
Crawford is fascinated in developing and growing brands. Back in 1996 Peter Kealy, current managing director of BWG Foods Retail Division, researched the segmentation of the brand and encouraged the company to consider developing Spar Express and EuroSpar. “Convenience retailing was really taking off and our retailers wanted to expand and we wanted to give them a formula to stay in the Spar family,” Crawford explains. “And of course this floated my boat so we launched EuroSpar in 1997 and we went really hard on Spar Express as well. EuroSpar was a great success and within about three years it accounted for about 30% of the overall Spar turnover. Today there are 56 EuroSpars.”
While we are used to seeing Spar, EuroSpar and Spar Express there is a new concept Spar store fresh on the market. Spar Gourmet has popped up on Dublin’s Baggot Street It’s described as “a niche store concept which emphasises local and artisan suppliers”. The Spar Gourmet concept is one which actually comes from the Spar International network and has been successfully deployed in Austria. Crawford assures us that there are no other Spar Gourmets in the pipe line and the reason for opening this on Baggot Street was that it was a perfect location with a busy, upmarket lunchtime trade and it was an area that was already serviced by a number of other Spar stores. “We’re happy with that store. We never saw Spar Gourmet as something that we were going to drive 10 or 20 stores. It’s just for niche areas and where it has potential we would look at it.”
Innovate or die!
Crawford sees the market in speciality food and beverages as vital for future growth. Coffee is one area that he thinks BWG already excels in. “In a recession you might think people would cut back on coffee. Not so,” he says. “Our coffee growth of hot beverages in the last four years has grown by 31% and grew by 8% in the year to the end of 2013. We’re predicting at retail level our coffee sales to be around €23 million and that’s just in Spar. That is phenomenal.” He says it works because it’s an “affordable luxury”. He sings the praises of their partner brands like Insomnia, Tim Hortons and Bewleys. “We have great coffee,” he says. “Our coffee offering beats the pants off the opposition.”
Trying new concepts and being innovative is the only way to win new business in Crawford’s opinoin. “You know that term innovate or die? Well I think innovation is really important. We’ve done a lot of work in the last phase. We’ve good quality private label and we need to grow this penetration. Our chilled private label produce has grown by 50% by introducing new lines into the stores. Throughout the recession a lot of the things we did were both defensive and efficient in terms of Kilshane and Kilcarbery and a few little acquisitions here and there but now we are poised for growth. So what’s going to deliver the growth for us is the brand. You’ve got to invest in the brand. I see it at the front end now. I don’t have all the answers for you but I know what I want to do and what my objectives are and the challenges we face in trying to achieve all those. We’ve got to be creative, at the forefront of innovation. I always like Spar to be the leader in terms of innovation,” he says.
The year ahead
Crawford makes no bones about it – he doesn’t see recovery in the retail industry this year and says that their plans would reflect that. “I think all retail business need to get into top line growth and that has to flow from the macro situation because businesses now have gone through all the efficiencies. We need to find a way to grow that top line, the turnover line, for everybody to start growing again. I don’t see it happening in 2014 but if I take the five year view, I do think we’re going to turn the corner but we’re not going to get back to the 2006/2007 crazy years. I do think the growth will start coming about in 2015.”
He is keen to get together with other heads of industry to try to help retailers on a macro level. “The retailer has had to cut back but their compliance costs are getting higher and higher so retailers are working much harder for a smaller return. I think we could make a case for the importance of retailers in a community providing employment and to see if the banks could take a more benign view on the situation. I think that’s common to the sector whether you’re BWG, Musgrave, Londis or Stonehouse. Maybe we should be trying to work together. I’ve spoken with Chris Martin and Minister John Perry and he asked me to write a note to him and said he would try to facilitate a meeting. I’m not promising that will happen but it’s certainly on the agenda for 2014.”
With Crawford on the case you would be confident that he will put a good case forward for struggling retailers and on a larger scale he will continue to push the boundaries to ensure that Irish convenience retailing remains an industry that other countries take inspiration from. In any case, Crawford seems determined to ensure the competition between the top players in Ireland remains as tough as ever.