The old Inverness branch, which used to have a fine selection of malts
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On 4th April 2011 Oddbins Ltd, a UK national wine merchant chain, went into administration owing over £22 million including £8.6 million in tax and excise duty. Oddbins was founded in 1963. In the 1970s Dennis Ing and Nick Baile bought the company. Then in the 1980s it was bought by Seagrams, who sold it to the French drinks company Castel in 2002. In what proved to be the final change of ownership Simon Baile, Nick Baile’s son, and Henry Young acquired Oddbins in August 2008 through Ex Cellar Investments Ltd.)
Who’s to blame?
“Beware the son!” warned a senior member of the wine trade in mid-April during this year’s Decanter World Wine Awards.
There are plenty of examples of sons of successful fathers driven to emulate or cap their father’s achievements. All too often it ends in disaster as Oddbins has for many – staff, suppliers plus UK citizens through the £8.6 million owed to HMRC.
When Simon Baile bought Oddbins in August 2008 was he blinded by sentiment? Did he do his due diligence properly? Did he have a carefully considered plan detailing how he was going to reverse the decline of Oddbins under Castel and how he would find a way of being different from the supermarkets that would also be profitable?
It is all too facile to blame the supermarkets and the public’s love of a bargain for the final collapse of Oddbins. It won’t wash. In August 2008 the challenge posed by the supermarkets was known all too well – wine merchants Unwins had already collapsed and Threshers (First Quench), the UK’s largest wine merchant chain, was decidedly sickly and would be in administration just over a year later. Baile and Young should have been well aware what they were taking on. Baile’s subsequent complaints about hidden clauses in the deal with Castel, which gave Baile and Young Oddbins without putting any of their own money up, only suggest that they failed to do the necessary due diligence and didn’t read all the small print.
In a deal typical of the era Oddbins lent them the money to buy itself through their company – ExCellars Investments Ltd. This arrangement was memorably described in the High Court on 4th April as ‘a whitewash procedure’.
It may well have been that Baile and Young hoped that once they had secured Oddbins that they could attract investors to join them. It wasn’t their fault that the long boom hit meltdown in September 2008 just a month after they struck the deal. But even given the changed landscape were they able to offer enough to attract investors in the changed times? Did they offer equity in exchange? Did their apparent reluctance to put their own money on the line deter investors? Did investors have sufficient confidence in Baile’s abilities?
Did they decide that he was trying to punch well above his weight – that he was out of his depth as subsequent events appear to bear out?
The lack of investment is now all too clear. Oddbins is often feted for its quirky charm. But, today, looking at the state of the shops, admittedly now closed, it is obvious that they were shabby, run-down and badly in need of a facelift.
Unrealistic discounts and virtually no net presence
Baile and Young chose to offer significant discounts for buying a dozen bottles or more, while putting a high price on smaller purchases. This was later reduced to a discount on six bottles.
This policy might have worked if the shops had good car parking facilities along the lines of the Majestic Wine Warehouse model. However, the majority of the Oddbins stores were on the high street with no parking facilities, so few people could take advantage of the discounts. Inevitably customers felt they were paying well over the odds for single bottle purchases.
Although this pricing policy was widely criticised, Baile and Young stuck with the principle.
The net
Oddbins failed to embrace the net, leaving the field open to more nimble and switched on operators like Naked Wines. I suspect that Baile just did not understand its potential. Soon after the Baile-Young takeover the Oddbins’ the majority of the wines shown on the Oddbins’ site were listed as unavailable, which immediately gave the impression, rightly or wrongly, that the company was having problems sourcing stock.
2010: on the slippery slope
Oddbins’ financial position deteriorated sharply during 2010.
Oddbins’ balance sheet plunged into the red during 2010 dropping £6.3 million in 10 months. By October their net assets were in deficit by £2.6 million.
The trading position of the stricken drinks company deteriorated dramatically during the 2010. In December 2009 the company’s balance sheet showed net assets, after removing the debt owed by Ex Cellars Investments Ltd, of £3.7 million. By February 2010 this had dropped to £2.15 million and continued falling to £491,000 in June and by September it was minus £1.85 million before dropping nearly another £1 million by mid-October. It is understood that the equivalent position in 2009 was a surplus of around £3.4 million.
Over the same 10-month period amounts owed to trade creditors increased as did the debt to HMRC for unpaid duty and PAYE. It is also known that an increasing number of UK agencies and importers as well as producers around the world were either declining to supply or requiring cash with orders.
The balance sheet suggests that Oddbins was in very serious trouble by October-November 2010. It may well be that Simon Baile and Henry Young pinned many of their hopes on being able to trade into a more favourable position by a spectacularly good Christmas.
It is understood that, under Castel, Oddbins had typically seen a big spike in sales, believed to be in the region of £2 million, close to Christmas. Under the new regime this had not happened in either 2008 or 2009. But perhaps 2010 would be different!
However, putting a big promotional campaign together for Christmas 2010 would doubtless have been a real challenge given the number of suppliers now declining to supply as well as those who had been supplying presumably getting increasingly concerned, angry and frustrated that their bills were not being paid despite assurances that their accounts would be settled.
In the event there was no big 2010 Christmas campaign. Instead there were complaints from the staff of shortages of stock that would get steadily worse in the chain’s last few months.
Early in 2011 Baile and Young called in Spectrum Corporate Finance to try to save the business. But it was too late: the debts were around £22 million including £8.6 million owed in tax and excise duty.
Was the CVA viable?
It is now apparent Deloitte, the administrators, have only been able to sell of the Oddbins’ branches piecemeal with the largest chunk (37 shops) going to EFB, which will trade as Whitalls. Baile has now bought five shops. Clearly even the slimmed down version of Oddbins has not been considered to be viable. This must surely call into question the assumptions made in the CVA. Had the CVA been accepted, it seems all too likely that Oddbins would have run up further debts. HMRC (Her Majesty’s Revenue and Customs) look to have been right to reject the CVA.
Oddbins – winners and losers
Now that the Oddbins’ saga appears to be nearing its end, it’s time to take stock and consider the winners and losers.
The staff
The staff has long been some the real assets of Oddbins. Alone among their competitors, Oddbins were the only wine street chain in their heyday to get their staff training right. They attracted keen, knowledgeable and enthusiastic staff – ready to share their enthusiasm with clients. A number of the current leading members of the UK wine trade served their apprenticeship at Oddbins.
Sadly the staff appear to have been the most notable losers in the Oddbins debacle. Some of those made redundant have worked for Oddbins over many years and some clearly feel betrayed by Baile as comments on twitter and my Jim’s Loire blog show. (http://jimsloire.blogspot.com/2011/05/simon-baile-acquires-five-shops-from.html)
Simon Baile and Henry Young
Financially Baile and Young must be counted as winners. Both drew salaries of £150,000 a year – admittedly not a huge salary but considerably higher than shop managers. Three of Young’s daughters worked for the company.
However, the debacle has certainly bruised their reputations both men with their disillusioned ex-staff and the wine trade, in particular those suppliers owed substantial sums by Oddbins.
Suppliers
Several wine importing companies took very big hits in the collapse of Oddbins – prominent among them Hatch Mansfield (£310,000) and Pol Roger UK (£273,612). Some companies feel that they were misled over the true position of Oddbins in 2010 and report that promises of payment were made to them that were not realistic.
A director of one of major creditors told me that they will be happy to supply Whitalls, especially as Emma Nichols, ex-Oddbins, is joining them as wine buyer. They will, however, be more reluctant to supply ExCellars.
ExCellars Ltd
The company, which was founded in September 1998, had two stores (Ashtead and Paris) in August 2008 when Simon Baile bought Oddbins. During his tenure with Oddbins Baile added another two branches to ExCellar – Claygate and Fulham Road, London. Very recently Baile has bought a further five stores from Deloitte, the administrators, taking the chain to nine stores. The additional stores are Canonbury, East Sheen, Farringdon, Surbiton and Summertown (Oxford).
It will be interesting to see how Baile manages the expansion of ExCellars – what staff he can attract and how easy it will be to find suppliers prepared to sell to him on favourable terms.
Will lessons from Oddbins be learnt?
When I spoke to Baile on 17th May he appeared to indicate that it would be more of the same: "Our first task is to get the shops, which have now been shut for a few weeks, trading again, to get a team together and get energy back into the stores. We intend to continue to do what we do best: to offer interesting wines from small independent growers."
Some of the signs are not promising notwithstanding that ExCellars Ltd has been trading since 1998. The pricing policy is the same as Oddbins, the website is dated and the company has been slow to comply with UK company law.
Pricing
ExCellars offers a discount on six bottles but single bottle purchases tend to be expensive. The 2009 MD from Henri Bourgeois costs £24.99 a bottle on six bottles the price is reduced to £19.99. See
www.excellar.net/onlinePriceList.html However, the same wine can be bought for £18 from wine2laydown.com
(www.wine2laydown.com)
Internet
The current ExCellars Ltd site is clunky, old fashioned and kept up to date – there are still tastings listed from earlier this year. To date wine cannot be bought on-line.
UK company law
On 11th January 2011 UK Companies House issued a first gazette against ExCellar Ltd for failing to file its accounts on time so being in breach with UK company law. This is the first step to dissolving a company. The offending accounts were speedily filed and the dissolution notice has been withdrawn.
Baile has declined to talk of the finance required to fund the expansion but the five shops will need to be restocked, renovated and rebranded.
À suivre!
