Cornering a slice of the retail revival
BWG chief executive Leo Crawford believes the retail business has proved the naysayers wrong
Christmas hasn't quite come early for BWG boss Leo Crawford, but the group's annual trade show last week did bring some off-season Christmas cheer to retailers visiting the Citywest Convention Centre.
During a humid June morning, hundreds of shop owners couldn't miss a towering Christmas tree, along with ornamental Rudolphs and Santa decorations as suppliers handed out samples of their newest festive goodies in one prominent section of the large events hall.
Crawford himself is feeling rather jolly.
This time four years ago BWG, which operates the Spar and Londis symbol groups among others, was on its knees. Crippled with debt, and with vulture funds circling, the future looked bleak to outsiders.
But unbeknown to all but a handful of BWG insiders, Crawford and his fellow shareholders - John Clohisey and John O' Donnell - were locked in secret talks with Spar South Africa.
The South Africans took an 80pc stake in the company for €55m, also taking on debts of €130m. Crawford and his shareholders retained only 20pc of the equity in the company, but it was a great result for the business - securing its future with a €100m investment plan.
With those high-stress days of debt now behind him, and Irish consumers feeling buoyant, it is little wonder that Crawford is in good spirits, chatting to shop owners and suppliers alike as he does a walkabout of the trade show. More importantly, his main shareholder is happy with how the Irish business is doing.
"They would tell you that we've outperformed, above their expectations, which is great because from their perspective it was a big move for South Africa to invest in Ireland," says Crawford. "It was a vote of confidence in the management team and the one thing you have got to do when somebody like that invests with you is provide the returns for them. I think they're a really good partner - very quickly they were prepared to invest in the long term."
Within a few months of the 2014 investment from Spar SA, BWG acquired Londis for €23m and the Irish group has recently been given the go-ahead for the acquisition of 4 Aces, a supplier to rival chain Gala.
With BWG openly in acquisition mode, surely Gala and its various wholesalers would be an obvious target. Crawford doesn't give away too much, although he clearly sees further opportunities.
"Different wholesalers are involved in the Gala brand, so in terms of buying all those wholesalers that would be very... not all of them want to sell anyway," he says choosing his words carefully. "We are involved with Gala with 4 Aces, so that's a start anyway. I could never envisage where we would own every single wholesaler involved with Gala."
Gala would be a route to growth in a highly competitive market and it also has a wide geographical spread, which would no doubt be appealing to BWG.
BWG already operates Value Centre, which has 20 cash and carry branches nationwide along with Foodservice depots, and a 240,000 sq ft national distribution centre.
Crawford was raised in Marino, north Dublin, to a family which put a heavy emphasis on learning and hard work, and thought his career would be in teaching. His father was employed in the Department of Posts and Telegraphs while he describes his mother as "a fairly academic lady".
"I remember at a very young age learning Irish and history," he says. "So even at a young age we were focused on education, trying to do well, that was nurtured in us. The other interesting thing about my family was, there was always a great interest in politics. My grandfather was president of the Irish Congress of Trade Unions."
After achieving a 'good' Leaving Cert, Crawford went for an interview for the teaching course in St Patrick's Teaching College in Drumcondra and laughs at the fact that he somehow passed a singing test that was required but, to his shock, he failed the oral Irish test despite doing well in the subject in his Leaving Cert. "I was devastated. This was the plan, nothing else," he says.
There was no CAO system for universities at the time, but luckily he had sent in an application to Trinity College. "And I remember actually phoning Trinity in August and seeing was there a place available." There was and so he studied business at the university.
He recalls studying very hard and by the end of his degree was not inclined to follow the path of chartered accountancy and face more exams.
Instead, Crawford wrote to all the Irish PLCs he could and was offered a chance to work with Jameson owner Irish Distillers, which he grabbed with both hands.
Crawford held a number of roles with the company, including roles dealing with branding and marketing, but his big opportunity came with the chance to buy BWG, owned at that time by Irish Distillers. The symbol group, which is a mix of company-owned shops and franchise holders as well as a wholesale business, was well positioned to grow at a time when Ireland's economy was ratcheting up.
Crawford and his team were backed by private equity firm Electra, which stayed with them until 2006. "Then myself, John Clohisey and John O'Donnell did a leveraged buy-out. Then the crash came," he says. The €390m deal in 2006 had left the business carrying huge debts.
"We ran into difficulties with respect to our property covenants, loan to value covenants. A situation arose then where we had to try and do a refinancing - we did a refinancing in 2013 where the banks took warrants on our equity which was tough."
Crawford is typically modest in explaining how the deal with Spar South Africa came about in 2014.
"I'd love to say to you, 'Yes, that it was a great strategy', but I was sitting on a bus in Abu Dhabi at an International Spar board meeting, John Clohisey was beside me, our debt had been put up on the secondary desk for sale in late February and I said to John, 'Do you know what, I'm going to have a word with Graham O'Connor (the new CEO of South Africa) and see is he interested'.
And he was interested. It was a complicated deal, but it was done by that August.
Securing the investment was a huge relief for Crawford. He did not have personal guarantees and had taken money off the table in previous deals. "I was personally fine but you've suppliers, you've your own staff, you see, this is a people business, I mean, look at all those people," he says.
There was some scepticism about the deal when it was initially announced - some financial analysts raised concern about the margins of the Irish business, for example.
Crawford says that in addition to the buzz he gets from days such as the annual trade show, there is also a buzz from proving the analysts wrong. The business has performed well.
In 2017, BWG had revenues of €1.4bn, operating profits of €33.3m and profit before tax of €29.8m. The results for 2018 will show double digit profit growth.
While retail had a tough time during the recession, Crawford is keen to point out that debt and property were the issues at BWG - the underlying business grew earnings before interest, taxes, depreciation and amortisation (ebitda), he says.
Now that shoppers are feeling a bit more money in their pockets, you might expect convenience stores to be riding high. But they remain associated with high prices, something Crawford is very aware of.
"I call it the insult pricing thing, which we've got to try to avoid. We made massive inroads there and like in today's day and age you know you just won't get away with that, you've got to have exceptional standards, good service, good hygiene but competitive pricing," he says. "The consumer learnt through the recession as well.
"The sector has become much more competitive, Lidl and Aldi have played a big role in that, lots of people don't like talking about their competitors. I don't have a problem with that, I think they've done a very good job."
But there are challenges and Crawford expects 2019 to be a tough year. He is pragmatic about it rather than worried. "One of the issues now in our business and in any business in Ireland, is on the one side we're at full employment which is fantastic in terms of my consumers. But there's a supply and demand issue, getting people to work for you at rates that you have is now a problem so you've got to improve your wage rates.
"If your top line is only growing by 3pc and if your costs - our main cost is people - is growing at a faster rate that's a huge challenge now for Irish business and that's compounded by the fact that a lot of our operations are out of Dublin."
"The mathematics are challenging, because we're all running businesses where we're expected by our shareholders to grow our business."
He also said that growing insurance costs are a key issue for businesses.
"That's where you've got to be creative in terms of your business, certainly acquisition activity can grow your business quicker above the normal 2pc or 3pc."
But he said that with costs rising, growing margins is "the challenge any CEO in Ireland has at the moment." The group has several brands in addition to Spar - Eurospar, Mace, Londis and XL, accounting for over 1,000 shops. Would one option be to simplify the business and drop some of the brands? Crawford thinks not.
"Our brands allow us a degree of flexibility because if you go into certain towns, I don't think it works to have three Spars or three Londis but there are situations where you can have a Spar, a Mace, a Londis in a town."
BWG also has business in the UK, Appleby Westward, which operates 294 Spar stores in the south-west of England. Crawford says it is doing well, despite operating in an extremely tough environment. "We're going to achieve double-digit growth in profit before tax this year in Appleby Westward, so UK has often been a tough market to crack for Irish wholesalers in particular, but we've a good profitable business in Appleby Westward."
There are many issues affecting the British market, among them a shift to online shopping. It isn't something that worries Crawford.
"I'm not saying it's overrated, I think for certain sectors and retail, it's definitely had a huge impact in the UK, you know, but that's more high street, now I'm not saying it's not going to happen in grocery," he says. "Can we perform some part of that extra mile in terms of providing a service for retailers? Are we going to build a massive business online? No, not compared to some of our competitors."
Crawford focuses most of his energy on BWG and has one non-executive role, sitting on the board of the Stafford Group, which owns Lifestyle Sports. He is also working with Trinity on its endeavours to set up the first national cancer institute. "I don't have a huge amount of non-execs, I'm busy doing what I'm doing. I think if you want to become a non-exec, you've got to be committed and prepared to give time to it," he says.
Under the South African deal, the three Irish shareholders will exit the business in the coming years. John Clohisey leaves at the end of 2019, John O'Donnell at the end of 2020 and Crawford leaves in 2021. He says he has no intention of going any earlier.
"I'm really enjoying it," he adds with a grin.
Sunday Indo Business