Will C&C Group's Conviviality Deal Ensure Sunnier Climes At The Cider Maker? Analysis

By Steve Wynne-Jones
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Will C&C Group's Conviviality Deal Ensure Sunnier Climes At The Cider Maker? Analysis

Since its Magners brand was lauded as the 'next big thing' by UK drinkers just over a decade ago, Irish cider maker C&C Group has kept close eye on the weather.

And with good reason.

Year after year, C&C experiences the same occurrence in its financial reporting: when the summer is good, the company posts strong sales, when it's a washout, the performance is less positive.

Even as it has grown its portfolio with the addition of the Tennent's lager brand, and forays into the US with the Woodchuck cider offering, the sunshine (or lack of it) plays a significant part in the company's performance.

After all, when it comes to summer refreshment, you can't beat a cool cider over ice - except, perhaps, when it's raining.


Indeed, the first line of its most recent trading update, ahead of its full year results announcement on 16 May, referenced this phenomenon.

"Despite weather-related disruption, trading and cash generation was broadly in line with management expectations," it read, anticipating a tough, but optimistic set of results.

C&C is anticipating group operating profit of around €86 million for the full year, however its cider brands have had a challenging 12 months, with flat volumes in the UK for Magners, and its Irish cider brand Bulmers seeing volumes down 6%.

A Big Deal

While the company cannot do much about the climate, its deal to purchase the wholesale arm of Conviviality, Matthew Clark Bibendum, is a masterstroke, and should ensure that even in the case of a dismal summer, the company will be able to optimise the distribution channel for its products, as well for its rivals'.


The business is the largest independent distributor to the UK on-trade drinks sector, serving some 25,000 on-trade outlets. Its Matthew Clark arm offers a range of over 4,000 products, including beers, wines, spirits, cider and soft drinks, sourced from in excess of 300 suppliers, while the Bibendum segment offers more than 4,000 wines, spirits and craft beers sourced from over 400 suppliers.

Commenting on the deal, Stephen Glancey, chief executive of C&C Group, said that Matthew Clark Bibendum boasts "unparalleled on-trade market access, a wide range of supplier relationships and supported by a knowledgeable and loyal employee base.

"The last few weeks have been challenging for employees, customers and suppliers alike. We hope today’s announcement can put an end to this period of disruption and uncertainty. We look-forward to working with our new colleagues and other stakeholders to bring stability and restore the group’s position as one of the leading and most respected drinks suppliers to the UK hospitality sector.”

According to the Financial Times, in acquiring Matthew Clark Bibendum, C&C is making a £158 million saving; it had previously considered acquiring Matthew Clark in 2015, but was beaten to the punch.


In addition, when sales, assets and debt are taken into account, C&C has acquired the business for practically nothing. The announcement cites a 'nominal sum'. The FT reckons this could be as low as £1.

Analyst Viewpoint

According to Cathal Kenny, an analyst at Davy Stockbrokers, following the acquisitions of the Wallaces and Gleeson distribution businesses, this latest deal "marks a material up-scaling of C&C’s downstream activities across core markets.

"While not without risk (maintaining supplier and customer relationships will be key), we believe the transaction makes economic and strategic sense and will help reshape the equity narrative. Re-establishing stability and credibility will be an immediate focus. Management has guided ‘significant’ earnings accretion in the first full year post completion."

There are also synergies with C&C's existing commercial relationships, Kenny noted - C&C has had a longstanding relationship with AB InBev in respect of their respective beer and cider portfolios in the UK and Ireland.


"Under the distribution agreement, AB InBev assumed responsibility for the sales and trade marketing of C&C’s cider portfolio in England and Wales," Kenny said. "MCB is an important route to market for AB InBev."

Overall, Davy noted noted that the additional revenue opportunities, potential to strengthen relationships, and improved access to premium trade sectors, such as London and the South East, will meant that the acquisition of Matthew Clark Bibendum will "materially enhance the scale and earnings base of C&C’s UK platform".

The long range forecast for the coming months is yet to be announced, but this deal means C&C's management will still be able to bask in a summer glow, regardless of the weather outside.

© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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