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With the last Costcutter deliveries made by collapsed wholesaler, Palmer & Harvey, now at least a week ago, distributor Nisa has announced that it is providing stop-gap supply to some Costcutter stores, covering the interval before the launch of the new wholesale deal with Co-op in the Spring.

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Following the announcement that the UK's largest delivered wholesaler Palmer & Harvey is now in administration, PwC, the administrators, have advised the company's customers that it cannot provide any further wholesale service and that even orders placed before the administration cannot now be honoured.  Therefore customers "will need to arrange an alternative source of supply going forward."  With sales of £4.4bn from a customer base numbering up to 90,000 retailers and institutions, the resulting redistribution of business-to-business supply is perhaps one of the biggest short-term upheavals ever seen in the UK wholesaling sector, and as such the opportunities for other wholesalers are considerable.

Not all the £4.4bn likely to be 'wholesale accessible'

Amongst Palmer & Harvey's broad customer base is included multiple grocery retailers such as Tesco and Sainsbury's using it mainly as an outsourced specialist distributor of tobacco.  Accounting for an estimated 60% of total company sales it seems likely that this element of the business can be quickly diverted through in the in-house supply chain/logistic functions of these very big customers, and thus the opportunity for wholesale competitors will be limited here.  However, in contrast those many smaller customers without their own supply chain resources will be looking to third party wholesale/distribution sources to fill the gap.  As well as many small scale retailers (with only one or a handful of stores), this category of P&H customers does include some significant, even national, store operators such as McColl's, Esso, Shell and forecourt dealership MRH, and is worth up to £1.7bn on an annual basis.

Booker, Nisa and SPAR: key players in the delivery space

The obvious businesses for larger retailers, needing well-organised multi-site service, to turn to are Booker (in particular the Booker Retail Partners division), Nisa and SPAR all of which operate national delivered wholesale services, and all of which specialise in supplying convenience stores.  However, the scope that these wholesalers have for taking on significant new customer accounts at short notice is unclear.  Typically when new accounts are activated there is a gradual roll-out process with stores switching into the new supply network in manageable batches, a luxury not available in the current circumstances.  Thus while we will see these delivered wholesalers taking on former national account customers of P&H in due course (and of course Morrisons in the case of McColls), in the short term we are likely to see a wide range of ad hoc, short-term contingencies being put into place.

Key cash & carry players to benefit in the short term

The simplest short-term contingency for any smaller retailer will be to turn to cash & carry wholesalers, allowing ready access to stock by collecting it for themselves.  In these current circumstances with distribution arrangements needing time to set up (if only to establish credit facilities), even larger retailers are likely to be dealing with Booker, Bestway and Dhamecha (plus many others) on a cash & carry basis in the next few weeks.  National symbol group Costcutter, including some 2,200 stores has already sought to register all its retailers with local cash & carry depots to ensure access to stock over the coming weeks.  Meanwhile the wholesale buying group Today's has advertised to P&H customers that it is working with suppliers "to ensure upweighted stock holdings and key pricing on critical items in order for independent businesses to be confident in making their local Today's Group member wholesalers (which includes Dhamecha) first choice to support this change."  

Following the collapse of Costcutter's supply partner Palmer & Harvey, it has been announced that the symbol group has signed an agreement with Co-op, by which it will become the exclusive wholesale supplier to the 2,200 Costcutter, Mace, Simply Fresh, Supershop and kwiksave stores.  The five-year deal will commence formally in Spring 2018, though with P&H ceased trading, Co-op is now exploring practical short-term ways it can support Costcutter retailers in the meantime.

Costcutter now activating stop-gap supply plans

While Co-op cannot immediately fill the gap left by P&H's insolvency, Costcutter is now putting in place contingency arrangements with other suppliers, to ensure its retailers can receive product deliveries in the run-up to the full roll-out of the Co-op relationship.  In addition Costcutter retailers will no doubt also be seeking proactively to fill gaps in supply for themselves at this critical festive trading period, with local cash & carry operators especially expected to benefit in the short term.

Effectively reunites Costcutter and Nisa

With Co-op successfully progressing its acquisition of Nisa, this new supply deal with Costcutter means that once again the two businesses will be closely linked.  Prior to the split in 2014 Nisa had been the dedicated wholesale supplier to the Costcutter symbol group for many years.  With the Co-op acquisition on Nisa expected to be approved by the Competition and Markets Authority in March 2018, the deal could complete just in time for the Nisa supply chain to take on the Costcutter stores again as the contract begins.

Significant boost to Co-op wholesaling ambitions

Added to Nisa, with wholesale sales of some £1.3bn, the Costcutter supply contract, estimated to be worth some £600m annually, will create a wholesale business for Co-op approaching £2bn, making it within a short space of time one of key players in the channel of supply to UK independent retailers.

Costcutter, one of the UK's leading retail symbol groups has reported sales of £622m for the full year 2016, down 9.8%.  The decline was driven by both business in the UK, with sales down 6.2% to £616m, but also in Europe where sales fell by 79.3% to just £7m.  At the end of the period Costcutter store numbers were down to 2,200 across its combined fascias (Costcutter, Mace, Simply Fresh, Kwiksave and Supershop).

Improving profit situation

Though still recording an operating loss of £6m for 2016, this was less than 2015, when the loss was £13m.  The improvement was driven by a 17.3% rise in gross profit to £44m, representing an increase in gross margin to 7.1% from 5.5%, and was also supported by reduced operating costs.

Focus on removing unprofitable retailers

Over 2016 Costcutter ceased trading with a number of retailers including both the Motor Fuel Group multiple account, as well as numbers of independent operators who have failed to meet minimum group compliance standards.  With this rationalisation process completed, Costcutter now believes it has a stronger, more engaged and more profitable affliated store estate which will benefit all of its retailers, suppliers and the long-term growth of the company.

Improvements in retailer offer to drive future recruitment

Going forward Costcutter is seeking to drive growth with the launch of a new commercial retailer proposition, to provide a more competitive and compelling framework for creating mutual benefit for the group and its members.  This includes a focus on developing best in class store format solutions, in line with its Shopper First Programme, as well as working with its distribution partner, Palmer & Harvey, to improve the day-in-day-out availability of products.

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