Costcutter sets out options following Bibby deal

Costcutter’s management will stay on and Bibby has set the group a 12-month deadline to decide how best to grow the business.

Colin Graves, who will stay on as chairman of York-based Costcutter in addition to his new role as chief executive of Bibby Retail Services, said the group has four options.

“First we stay as we are and deal with Nisa (Nisa Today, which is Britain’s biggest buying group for independent retailers), or we do it ourselves – we have the volume to do it on our own. The third option is we jump into bed and set up a business operation with another partner or fourthly we buy someone, be it a retailer or a wholesaler,” he said.

Bibby’s managing director Sir Michael Bibby said: “We may well extend with Nisa if we can agree best terms with them. We’ve got a contract with Nisa, we don’t believe it’s sharp enough for our members, but we’re still talking to Nisa and it’s still an option.”

Former Costcutter managing director Nick Ivel will become chief executive and will take control of the day-to-day running of the business.

The deal means that Bibby will take over the 49 per cent stake in Costcutter that it didn’t already own. The group said there would be no impact on jobs or on the head office in York.

“This takes the uncertainty away,” said Mr Ivel. “Everyone knew this share purchase would happen. The real benefits will come when the supply chain is sorted out.”

Talking about current trading, Mr Ivel said overall sales are up three per cent year on year and like-for-like sales are up around two per cent.

“People are still shopping locally,” he said. “Current trading is good, it’s pretty buoyant.”

Mr Graves said: “I see a healthy large group within Bibby Retail Services. We want to make it the prime mover in our sector. There will be more consolidation and this deal puts us at the forefront to lead it rather than follow it.”

Nisa Today’s chief executive Neil Turton said: “We have a very good relationship with Costcutter. Its contract with us lasts until the middle of 2014 and Bibby has stated before it will see this contract through to its end, an approach which is in line with the company’s values.

“Nisa would like to see its relationship with Costcutter extend beyond 2014 and has made proposals for an extended contract to Costcutter. We understand that the Costcutter management team is remaining the same. We have a good relationship with them and will be discussing the longer term future with them in 2012. Our preference is to continue to work as close partners for the benefit of independent retailers.”

Costcutter, which is celebrating its 25th anniversary this year, is launching a new fascia to mark the anniversary.

Under the “myCostcutter” brand name, the group will introduce a simplified white fascia and open window displays.

Costcutter announced a four per cent increase in sales to £640m in the year to April 30.

Bibby reported a 46 per cent increase in operating profits to £40.8m in the year to December 31. Bibby said growth was driven by its financial services, logistics and retail services businesses.

Financial Services posted pre-tax profits of nearly £35m, Bibby Distribution reported a record pre-tax profit of £7m and Costcutter said pre-tax profits rose 57 per cent to £4.4m.

But the group was let down by its marine business, which reported “challenging trading conditions”.

Bibby made an overall pre-tax profit of £31m for the year, which implies the marine business made a hefty loss.

The growth of a franchise

Costcutter is predominantly a franchise business with nearly 1,600 stores throughout the UK and Ireland.

Founded in 1986, it employs over 600 people nationwide and has its head office in Dunnington, York.

The group has grown from seven stores in the York area into a nationwide business with stores across England, Wales, Scotland, Northern Ireland and the Republic of Ireland.

It has over 200 own brand products which it sells alongside brands such as Birds Eye, Walkers, Cadbury’s, McCain and Andrex.

Its stores are open seven days a week.