Argyll Group PLC

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Argyll Group PLC

Argyll House
6 Millington Road
Hayes, Middlesex UB3 4AY
01-848 8744

Public Company
Incorporated: 1977 as James Gulliver Associates
Employees: 63,000
Sales: £3.7 billion (US$6.69 billion) (1989)
Stock Index: London

Considering its current annual sales of £3.7 billion, the Argyll Group’s history is remarkably short. In 1987, just short of celebrating its tenth birthday, Argyll became the fourth-largest grocer in Britain when it purchased the 133 U.K. Safeway stores from their American parent, Safeway Stores Inc. The Safeway purchase gave Argyll a place in the upper echelon of British retailing and encouraged the company to begin the conversion of its largest Presto stores to the widely recognized and well-respected Safeway name. When its ambitious “Safeway 1990s” program is completed in March of 1991, Argyll will have built its stable of Safeway markets to around 320, comprising some 6.2 million square feet of sales area and contributing all but 20% of Group sales. In addition, Argyll will have some 300 Lo-Cost stores, discount stores that offer a limited range of groceries, and nearly 200 other stores (chiefly Prestos) in Scotland and northeastern England.

James Gulliver is the man most responsible for Argyll’s spectacular career. He was born in Cambeltown, Argyllshire (hence the Group’s name), in 1930, and graduated from Glasgow University with a degree in engineering. He spent several years with the management consulting firm of Urwick Orr. In the mid-1960s, he joined the supermarket chain Fine Fare, then a division of Associated British Foods. He quickly became chief executive, and in a matter of seven years had more than tripled sales from £60 million to £200 million. One newspaper honored Gulliver as its “Young Businessman of the Year” for 1972, but he resigned shortly thereafter, along with Alistair Grant, then managing director at Fine Fare.

Gulliver promptly bought a significant minorty share Oriel Foods, a wholesaling firm doing about £10 million annually. Together with Grant and David Webster, an investment banker, Gulliver acquired management control of Oriel. Within a year, Oriel was bought out by RCA Inc., which was then trying to build a European food division. The three men stayed on, multiplying Oriel sales tenfold by 1977. That year Gulliver, Grant, and Webster left Oriel and formed James Gulliver Associates. After a first investment in a home improvements company, they began building their own grocery conglomerate, starting with the purchase of two food companies, Morgan Edwards and Louis C. Edwards, a Manchester meat business.

By 1980 the new organization had adopted the name Argyll Foods and made significant inroads into the U.K. grocery trade. Over the next few years Argyll made several major acquisitions. Chief among these purchases were the 1981 acquisition of Oriel Foods for £19 million from RCA, which had apparently tired of the grocery business; and the June, 1982 purchase of Allied Suppliers from James Goldsmith, for £101 million. Between them, these acquisitions gave Argyll a nationwide range of operations, but one concentrated in northern England and Scotland. Presto, the most important of the new holdings, was a chain of 136 large grocery stores. Argyll also now owned Templeton, a line of 84 medium-sized supermarkets in Scotland; Liptons, with some 500 supermarkets in England and Wales; Lo-Cost, which, as its name suggests, occupied the lower end of the price spectrum; and Cordon Bleu, a 125-unit chain selling frozen foods. Along with some limited food wholesaling activity, Argyll also owned a biscuit, tea, and coffee manufacturer and an oil-refining business; both had been divested by 1987.

In 1983 Argyll Foods was merged with Amalgamated Distilled Products (ADP), a liquor company Gulliver and his associates had controlled since 1979. ADP produced Scotch whisky and dark rum, and ran a 300-unit discount liquor chain called Liquorsave. It also owned Barton Brands, a U.S. liquor producer and distributor, which it had acquired in 1982.

In 1985 Argyll began a major reorganization of its food division, realizing that if it was to become a major force in British groceries it would have to simplify and streamline its collected holdings, many of which were old, small, and out of touch with recent trends in marketing. The company therefore began converting all of its stores to either Presto or Lo-Cost, according to the demographics of each store. At the same time, the directors put a great deal of energy into lowering costs by taking advantage of the Group’s greatly enhanced purchasing power and improving its distribution network. This reorganization, which was completed in 1986, put Argyll in a strong position to integrate its 1987 Safeway acquisition smoothly and efficiently.

One reason for Argyll’s interest in Safeway was the debacle of its 1986 bid for the Distillers Company, Britain’s largest producer and distributor of Scotch and other liquor products. Gulliver hoped to use Argyll’s relatively minor liquor business as a springboard from which to enter the liquor market in a much more dramatic fashion.

In a carefully planned attack, Argyll made its bid for what Gulliver described as a once-great Scottish concern lately become moribund, offering to its shareholders a higher-than-market price for their stock and the prospect of fresh managerial expertise. Financial analysts heavily favored the proposed merger, which Gulliver and Alistair Grant hoped to consummate for reasons of Scots pride as well as profitability, but Distillers eventually rejected Argyll and accepted a possibly illegal bid from Guinness, the well-known British brewing conglomerate. The complex legal issues involved have not been fully sorted out, but it was clear that the failure of Gulliver’s year-long struggle was a great disappointment to him. Though he remained at Argyll long enough to consummate the Safeway deal, he stepped down as chairman in September, 1988.

Gulliver’s successor, and the chief architect of the Safeway deal, was Alistair Grant. For many years Gulliver’s closest adviser, Grant is an experienced food retailer who commands great respect in London financial circles, as evidenced by the ease with which he placed the £621 million worth of new stock needed to pay for the Safeway stores. (The total price of £681 million was made up with a £60 million interest-free loan from seller to buyer.)

It has been Grant’s job to oversee the integration of Safeway and Argyll. The two companies were well matched: while Argyll’s strength lay in the north, Safeway was predominantly a southern chain, though it had a significant business in Scotland. In addition, Safeway, despite its size and high per-unit profits, was widely believed to have a weak purchasing policy, an aspect of the business which Argyll had honed to a fine art. In general, the merger brought together the old and the new: Argyll’s older and smaller stores, closer to the English tradition of the independent shopkeeper, with Safeway’s more efficient and more fashionable stores. Argyll essentially has set out to capitalize on Safeway’s appeal by adopting not only its name but its merchandising concepts as well.

To that end, Argyll converted some 57 of its Presto stores to the Safeway logo in fiscal 1988 (and seven the year before), in addition to opening 19 entirely new Safe ways. To supply its vast network of outlets in an efficient manner, Argyll continued to upgrade and consolidate its warehouse distribution centers, most recently adding a 510,000-square-foot facility in Bellshill, Scotland. In accordance with Argyll’s policy of operating only in those markets in which it can be a major player, the Group sold off all of its liquor holdings, except its retail operation, Liquor-Save, after failing to capture Distillers. Argyll is now the third-largest grocer in the United Kingdom. The market analysts who once were suspicious of Argyll’s unlimited ambition are now the company’s most enthusiastic backers, predicting continued success under the Safeway logo and the likelihood of further acquisitions in the coming decade.