Food for thought - Bridgepoint Capital

UK RETAILdemand for ever lower prices and thepressure that has put on companies hasalso helped to create opportunities.“Retailers are having to run faster, givebetter deals and offer a higher level ofservice. Competition in the market hasnever been more intense. This means thatmany publicly quoted companies need thekind of financial change that is quite hardto do in the spotlight of a publicquotation,” he suggests.“For example, in New Look you have acompany that always felt under-rated bythe City. It went private and itsperformance has been increasingly turbochargedever since. It had one of the bestperformances over Christmas and by thetime it comes back to the market it will bea bigger, stronger company,” he adds.The trick is to backthe right retailhorses, to spothow our evolvingsociety affectsthe way we spendmoneyRetail is attractive too because value canbe added to a business very rapidly. Thecombination of decent, like-for-like toplinegrowth with an improvement in thegross margin and a squeeze on workingcapital, is particularly beneficial.As Weldon explains: “You can have ahuge impact in a short space of time in away you can’t with other sectors.”So, even if the British consumer isfeeling a touch more cautious than a fewyears ago, there seems little reason forundue pessimism. Most people are in workand better off than they have ever been.Debt is high, but our ability to service andjuggle it is not seriously in question.Shopping has become a leisure pursuit inits own right, no longer just a means to anend. The endlessly fickle and demandingconsumer is simply too big, too powerfuland too important to the economy to beallowed to feel miserable. And consumersvote too. For private equity investors, thatis all good news.Pets at Home is living proof that pockets of theretail market are alive and well. The companyoperates in a niche area and sales are boomingNot all consumers come on two legs. One of the biggest success stories ofrecent years has thrived on the back of Britain’s well-known love of animals. Thereare 7.5 million cats, 6.1 million dogs and more than a million hamsters kept as pets inthe UK, and most of them will be cosseted and cherished by their owners.But until recently, most pets supplies came from dingy, back street pet-shops. Nowthe £2.3 billion a year market is dominated by the Pets at Home chain, which hasmore than 160 superstores around the country. The business was founded in 1991 byAnthony Preston, a Manchester-based businessman who started out in his family’swholesale hardware business.Preston spotted that the pet market was just as fragmented as the hardware sector,but less vulnerable to competition from retail chains. In 1984, the family companybought a small petwholesaler with sales ofjust £300,000. Sevenyears later, Prestonopened the first standalonePets at Home storein Chester. Two furtherstores followed, inRotherham and Chester.The format provedhugely appealing. By1999, Pets at Home wasstrong enough toswallow its main rival,the more southernPetsMart, in a £25.6million deal. The storesare typically around10,000 square feet atedge-of-town sites withplenty of parking andin-store events.Last year Preston andhis family decided tosell the company to Bridgepoint.Animal instinct: Guy Weldon, left, and Adrian Willetts, right, of Bridgepointwith Matthew Davies, chief executive of Pets at Home, whose like-for-likesales were up 14 per cent in 2004Pets at Home is now expanding at a rate of around 15 to 20 new openings a yearand hopes, ultimately, to have 300 stores in Britain. Like-for-like sales were up 14 percent in 2004 and growth was 10 per cent over Christmas alone.With Bridgepoint on the board, new rigour has been applied to sourcing andproperty management. Suppliers have been consolidated and there has been adrive towards higher margin pet accessories such as baskets, kennels, winterjackets and even ‘puppy training’ pads as well as premium brand dog and cat foods.Although the stores do not sell cats and dogs, smaller animals, such as rabbits,budgies and fish are available. Sales of live animals account for only about 4 percent of the chain’s total sales.Says Bridgepoint partner Guy Weldon: “Pets at Home stores are adestinationformat (over 90 per cent of store visitors plan their trip and arrive by car), but theyalso enjoy strong convenience characteristics – average visit frequency is high whilstconvenience and range are cited as the two most important reasons for visiting.”Jonathan Prynn is Consumer Affairs editor, Evening Standard18 THE POINT