WHEN Majestic halved its minimum purchase from 12 bottles to six in September 2009, it transformed the business. Customers who had never shopped there before gave it a try; profits and sales have grown at double digit rates ever since.
Until now. In the first six weeks of its second half, like-for-like sales dipped by 1.1 per cent, causing investors to question Majestic’s premium rating (the shares trade on an earnings multiple of 15.7 times).
Majestic puts the negative sales growth down to two poor weeks in October, which has always been a tough month. But the like-for-like sales trend has been decelerating for some time now. In the first ten weeks of the second half, they grew by 4.4 per cent excluding VAT, falling to 1.6 per cent in the next sixteen.
Yet we see yesterday’s share price weakness as a buying opportunity. Although the effect of the six bottle minimum is petering out, there is still room to grow. As well as continuing to benefit as consumers shift from beer to wine, we reckon Majestic will carry on stealing share from rivals. So far, it has benefited from the demise of the smaller wine merchant. But it is also giving the supermarkets a run for their money.
Indeed, it is the supermarkets who ape Majestic these days – the stock and promos on offer in Sainsbury’s Waitrose look increasingly similar to its own offering.
There is one area where the supermarkets can’t compete, however: customer service. Almost 100 per cent of Majestic’s staff have a degree and they are well-versed in wine. Taken with purchasing power that allows it to sell decent Rioja Reserva and New Zealand Sauvignon Blanc for £5.99, and you have a unique retailer, and one that is worth sticking with for longer. Just like a decent wine.