Budgens Ltd.

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Budgens Ltd.

Stonefield Way
Ruislip
Middlesex HA4 0JR
United Kingdom
Telephone: +44 208-966-6000
Toll Free: 0800-526002
Fax: +44 208-423-2263
Web site: http://www.budgens.co.uk

Wholly Owned Subsidiary of Musgrave Group Plc
Incorporated: 1896 as Budgen & Company Limited
Employees: 6,000
Sales: £500 million ($794 million) (2002 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores

Although the smallest of the United Kingdom's top super-market groups, Budgens Ltd. has successfully carved out a niche for itself among its behemoth rivals by focusing on local and city-center markets. Budgens operates more than 235 super-markets and convenience stores, primarily in England's southern and Midlands regions—in 2003, however, the company opened its first stores in the northern region. The company's stores range from 700-square-foot forecourt shops, to 1,500-square-foot convenience stores, to the larger 10,000-square-foot Budgens supermarket concept. Altogether, the company operates more than 800,000 square feet of selling space throughout England. In addition to its emphasis on local markets, and the so-called "top up" trade, Budgens has differentiated itself through the high proportion of fresh foods at its stores—representing as much as 40 percent of total store items. The company's convenience format operates under the Budgens Express signage, and features a 24-hour, seven-day-per-week opening schedule, while Budgens Forecourts operates smaller shops within service stations. Budgens has also been developing its own franchising concept, Budgens Local. By 2003, more than 30 independent grocers have converted to the new signage. Ireland's retail leader Musgrave Group Plc acquired 100 percent control of Budgens since 2002; however, Musgrave has pledged to maintain Budgens' independent operations, while seeking synergies between the two retail groups.

From Button to Booker to Barker in the 20th Century

Budgens started as a small, local grocer in England's southeast, founded in 1872 in Notting Hill. The Budgens name later appeared on a number of stores throughout the south, establishing a reputation for servicing the local communities around England's High Streets and suburban towns. In 1896, the company formally incorporated as Budgen & Company Limited.

Into the mid-20th century, however, the chain remained a small one, and had become part of the wholesale and retail group Alfred Button & Sons, itself founded in 1798. As part of Button, Budgen represented one of half a dozen retail store brands, which, by the middle of the century, had reached a total of some 82 stores.

In 1957, Button was acquired by the trading group Booker, McConnell & Co. That company's history dated back to the early 19th century, when the Booker brothers began trading operations between Liverpool and Guyana, then known as the British colony Demerra. The Booker brothers later expanded into sugar plantations as well as shipping and steamship services. Booker, McConnell then added food retailing and whole-saling operations in Guyana. After going public in 1927, the company began expanding beyond Guyana, adding operations in Trinidad and central Africa.

The political crises that swept through British Guyana in the early 1950s threatened Booker, McConnell's core business. In 1953, the company's board took the decision to diversify its operations. For this, Booker, McConnell proposed to add new operations in England, with an early emphasis on engineering on the one hand, and grocery distribution on the other. As part of that latter effort, Booker, McConnell acquired majority control of Alfred Button & Sons in 1957.

Under Booker, McConnell, Button's operations were restructured into its two core branches. Alfred Button represented Booker, McConnell's wholesale interests, while the company's English retail stores were placed under Budgen & Co. (the latter eventually became known as Budgens). By the early 1970s, with its Guyana operations under continued pressure (these were sold to the Guyana government in 1976), Booker, McConnell stepped up its grocery distribution operations, with an emphasis on expanding its wholesale distribution business. At the same time, the Budgens chain of supermarkets grew to more than 100 stores by the end of the 1970s. Nonetheless, Budgens retained its regional focus, with nearly all of its stores concentrated in the country's southeast.

Continued expansion of the chain brought its store numbers to nearly 150 by the mid-1980s. By then, however, Booker had decided to concentrate its future development on its wholesale operations. Booker had also come under attack in a takeover bid from Dee Corporation in early 1984.

After its failure to acquire Booker, Dee, which had been formed from the Linfood Holdings wholesale business, began to convert its focus to the retail market under the Gateway supermarket banner. In that process, Dee sold its Linfood wholesale operation to Booker in 1987. In the meantime, Booker itself had completed the reorientation of its grocery distribution wing, selling off the Budgens retail operation in 1986 to confectioner Barker & Dobson for £80 million. That purchase, described as "audacious," was greeted by a great deal of skepticism from the market.

Barker & Dobson itself had a long history as a prominent maker of confectionery—especially licorice—products, but had fallen on hard times in the 1970s. In 1985, Barker & Dobson's institutional shareholders insisted on new management for the company, bringing in John Fletcher to lead a turnaround. The young Fletcher, who held an M.B.A. from Harvard Business School, had already earned a reputation as something of a corporate hotshot, following his successful refocus of regional supermarket group Asda into one of the country's largest national chains.

Fletcher initially attempted to resurrect Barker & Dobson's confectionery brands. Yet the company's immediate efforts were met with continued losses. Instead, Fletcher decided to concentrate the company's growth efforts on its supermarket operation. Barker & Dobson announced its decision to sell off its confectionery arm, striking a deal at the end of 1988 to sell that business, including the Barker & Dobson name, to Scotland's Alma Caledonia. Following that transaction, the company renamed itself Budgens Plc.

In the meantime, Fletcher had led the company into an even more audacious direction. In 1987, Fletcher launched a £2 billion takeover attempt against Dee Corporation. If successful, the deal would have transformed Budgens into a major, nationally operating supermarket group. In anticipation of the group's impending expansion, Budgens commissioned a new, oversized warehouse and distribution facility in Wellingborough. Yet, the largely paper-based transaction failed, in part because the Budgens operation simply did not provide enough cash flow, or profits, to convince shareholders to support the bid. Dee Corporation was later transformed into the publicly listed Somerfield group.

Licking his wounds, Fletcher next attempted to merge Budgens with William Low in 1989. Yet that deal, too, ended unsuccessfully. By the beginning of the 1990s, Budgens' institutional shareholders—who had installed Fletcher in 1985—were becoming impatient. Added to these worries was the collapse of the British economy at the end of the 1980s, which resulted in the shedding of a number of Budgens stores. Finally, in 1991, Fletcher was dismissed, replaced by a three-man management team, led by John von Spreckelson, who had recently completed the turnaround of Germany's REWE supermarket group. By then, Budgens represented just 95 stores.

Convenience in the 1990s

Yet Budgens' new management appeared equally at a loss to find a position for the company in the rapidly changing British retail climate. The bruising economic climate had encouraged a wide-scale consolidation of the British supermarket industry, resulting in the emergence of a smaller number of powerful super-groups, led by Tesco and Sainsbury. At the same time, supermarkets were shifting their focus to the growing "out-of-town" shopping centers, which were springing up on the outskirts of the country's towns and cities, draining shoppers from the traditional High Street city centers. Meanwhile, a new breed of discount supermarket formats, led by Germany's Lidl and Aldi hard-discount chains, grabbed a stake in the United Kingdom's shrinking retail market. In response, supermarkets were forced to choose between an emphasis on differentiation—notably, the addition of new services and product categories—or a focus on price/cost, such as the discount model.

Budgens, however, attempted to achieve on both fronts, positioning itself as committed to local, High Street neighborhoods, while still continuing to differentiate with an emphasis on fresh foods in order to capture a stronger share of the "top-up" consumer market (that is, daily and weekly purchases as supplements to the main shopping excursion). As part of that effort, the company acquired Gilsons Bakers, a supplier of fresh baked goods to retailers, in 1992.

On the other hand, Budgens' new management led it, briefly, into the discount market as well. In 1992, Budgens agreed to sell more than 26 percent of its stock (with an option to increase that stake to more than 46 percent) to Germany's REWE. In return, REWE agreed to provide technical and financial support to Budgens in importing its highly successful Penny Market Discount store formula.

Company Perspectives:

Budgens' aim is to operate in every small town, large village & city centre, offering customers the finest fresh foods, the friendliest service and great Value for money. The aim is to be the viable alternative to the superstore and the first choice local supermarket where customers know they can trust the products they buy and where it is convenient for them to shop.

With more than 2,000 Penny Markets in Germany, the new formula appeared a good bet to attract the increasingly price-conscious British consumer, despite REWE's inexperience on the international market. Budgens began converting stores to the new format in 1992, and by the following year had converted nearly 10 percent of its total portfolio. Budgens also proposed to build five new stores featuring the Penny Market signage starting in 1994.

In 1995, however, Budgens pulled the plug on the Penny Market experiment. The company had been unable to impose the new brand on the British market, succeeding only in draining sales away from its own stores. Penny Market's losses in the meantime had dragged down Budgens' total profits. Rather than fight for market share, Budgens quickly abandoned the discount formula, selling five of its Penny Markets to Lidl.

Instead, Spreckelson led Budgens into a new arena that proved closer to the company's traditional base, that of the convenience sector. After converting the remaining Penny Markets to a new format (Freshsave, evoking the larger company's growing emphasis on its fresh foods selection), Budgens began exploring other areas of growth in the convenience sector. In 1996, the company added a second Gilsons Bakers to support its commitment to its fresh foods strategy.

By then, the company was back on the expansion track, adding ten new supermarkets, and moving into the service station forecourt market with an agreement to open ten stores in Q8 and Mobil outlets. The company's association with Kuwait Petroleum strengthened the following year with an agreement to open 40 more Budgens shops in the Q8 network.

In 1997, Budgens' convenience arm took a major step forward when the company purchased the 55-store U.K. network of 7-11 convenience stores from Jardine Matheson. That deal cost Budgens nearly £6 million, yet included a cash treasury of some £2 million, offsetting the purchase price. Budgens immediately began converting the 7-11 stores under the company's newly developed convenience store format, Budgens Express. The addition of the new stores helped boost Budgens' total to more than 170 stores, and enabled it to extend into the Midlands region from its traditional southeast base.

Fresh Focus and Fresh Owners for the New Century

With REWE seeking to exit its shareholding, Budgens began looking for new partners in the late 1990s. The company nearly found a partner in former owner Booker—which had been struggling in the 1990s—which proposed a reverse takeover, creating a larger wholesale and retail distribution group under the Booker name, but with Budgens management in control. Yet Budgens' shareholders ultimately balked at the deal after the two sides could not agree upon a price.

Instead, in 2000, REWE sold its stake to Ireland's Musgrave Group, that country's largest privately held retailer, which had been seeking to enter the U.K. market since the late 1990s. Under that sale, Musgrave Group agreed not to launch a full takeover offer of Budgens for at least one year. Yet similarities between the two groups, including their emphasis on local markets, appeared to offer strong potential for an ultimate merger.

In the meantime, Budgens continued to expand its three retail formats, building up a chain of more than 230 stores by the new millennium. Budgens also tried to extend into a fourth formula, that of Internet shopping and home delivery, acquiring Teleshop Services in 1998. Yet the company ran up against heavy competition from Tesco and others, and the service, dubbed Budgens Direct, was shut down in 2000. Spreckelson stepped down that year, replaced by Martin Hyson.

Hyson returned the company's focus to its core local retail formats, introducing a new franchise concept, Budgens Local, in 2001. The company began signing on independent retailers, who agreed to adopt the Budgens signage, while Budgens provided product purchasing, distribution, marketing, and other services. Initially, the company hoped to expand its Budgens Local branch to 200 or more stores; yet by 2003, the company had succeeded in signing on just 30 stores.

In the meantime, the company had added four new super-markets, through its acquisition of Sewards in 2001, which strengthened its position in the Berkshire region. The company also announced plans to step up its expansion of its convenience store network, with new store openings to reach as much as 20 per year.

Key Dates:

1872:: First Budgens supermarket opens.
1896:: Budgens incorporates as Budgen & Company.
1957:: Part of Albert Button & Sons, Budgen is acquired by Booker, McConnell.
1986:: Booker, McConnell sells the business, now known as Budgens, to Barker & Dobson, led by John Fletcher.
1987:: Barker & Dobson attempts but fails in takeover of Dee supermarket group.
1988:: Barker & Dobson sells confectionery business and changes name to Budgens.
1992:: Budgens sells 26 percent of stock to Germany's REWE and begins rollout of REWE's Penny Market discount retail format in United Kingdom.
1994:: Budgens abandons Penny Market format and focuses instead on building convenience store network.
1997:: Company acquires 55-store 7-11 chain in United Kingdom and converts it to Budgens Express format.
1998:: Company acquires Teleshop Services and launches Budgens Direct home shopping and delivery service (abandoned in 2000).
2000:: Musgrave Group of Ireland acquires 28 percent stake in Budgens.
2002:: Musgrave Group acquires full control of Budgens.
2003:: Budgens begins 20-store-per-year opening schedule as part of a strategy to double sales.

Fueling that effort was the company's new majority shareholder, Musgrave, which moved to take full control of the company in 2002. At the time of the takeover, however, Musgrave announced its commitment to maintaining Budgens as an independent operation, while pledging to use its own strong financial position to help Budgens double its revenues within five years, to top the £1 billion mark. With its strong emphasis on fresh food and local service, as well as a new parent company, Budgens appeared to have found the formula for its future success.

Principal Subsidiaries

Budgens Express; Budgens Forecourts; Budgens Local; Convenience; Metro; Village.

Principal Competitors

Co-operative Group CWS Ltd.; Marks and Spencer PLC; John Lewis Partnership PLC; Somerfield PLC; Associated British Foods PLC; Wm. Morrison Supermarkets PLC; Waitrose Ltd.; Aldi Stores Ltd.; Food Brokers Ltd.