Some twenty years before he was soundly defeated at Waterloo, Napoleon supposedly described England as “a nation of merchants.” The statement was deemed offensive, Napoleon got what he deserved and today the UK is proud of its retail prowess.
In food and drink alone, there are around 90,000 independent stores nationwide, catering for our local, last-minute and impulse needs. But we’re a nation that also loves a coffee, a pint or a bite to eat, and some 350,000 establishments offer just that service from the Highlands to the Cornish coast.
Kitwave helps these businesses run, delivering name-brand food and drink to over 40,000 shops, cafes and caterers nationwide. Gas stations, care homes, gyms and schools are also among the group’s customer base, but in each case, Kitwave is focused on delivering what businesses want when they need it at a price they can afford.
The strategy is working and Kitwave shares, at £3.42, should prove rewarding. Based in North Shields, just a few miles from Newcastle, the company began in 1987 with a single pay and carry store. Today, almost 5,000 deliveries are made per day from 30 warehouses. Orders vary in shape and size, but Kitwave specializes in small, frequent deliveries, averaging £350 each. Chilled and frozen products are particularly popular with retailers, while restaurants source almost all of their products from Kitwave, except fresh meat and fish.
The company’s range is extensive, with 44,000 individual products, from Magnum ice cream and McCain crisps to crisps and Coca-Cola, including onions and lettuce.
Choc full of products: Kitwave range includes Magnum, announced by Kylie Minogue
Customers do not pay shipping costs, so Kitwave makes money by adding a margin to the products sold. However, the margins are small and many companies prefer to have products delivered to their homes rather than traveling to cash and carry outlets.
The results for the 12 months to October 31 demonstrate this. Sales rose 20 per cent to £602m, pre-tax profits rose 39 per cent to £25m and the dividend rose 21 per cent to 11.2p.
Looking ahead, there is a lot of potential for continued strong growth. The wholesale market is huge, with annual sales of almost £25bn, excluding cigarettes. The big players account for more than half of the revenue, but that still leaves around £10bn in the hands of independent operators.
Here, Kitwave is doing better than most, with growth far outpacing its peers. The independent market is also deeply fragmented: hundreds of small players own one or two warehouses and serve only local customers. This presents attractive acquisitions for Kitwave, so the group has made 13 deals in recent years and more are expected.
Founder Paul Young, 67, will retire this summer, but his successor Ben Maxted has been in the business for more than a decade and knows it inside out. Maxted, a 40-year-old, is interested in improving profit margins and productivity by making the best use of technology, from route mappers for drivers to headsets that help warehouse workers navigate orders more effective.
Online ordering is also increasing, with average order numbers increasing as customers are presented with a multitude of product options. There is also a pipeline of acquisitions, as Maxted and CFO David Brind have a wide network of contacts and can secure deals before they hit the open market.
However, there will be no radical departure from Young’s proven formula. Delivering thousands of products to thousands of customers day after day is a demanding task. Many things can go wrong and customers can be fickle. Kitwave’s success is based on developing relationships with its suppliers, understanding its customers and ensuring products are in stock and delivered on time to the companies that need them.
The company joined Aim in 2021 and is reaping the benefits with increased recognition across its market. Brokers are optimistic about the outlook, forecasting sales of £660m and profits of £29m this year, with a dividend of 12.7p. Maxted and Brind are keen to reward shareholders and Kitwave’s balance sheet is strong, so steady dividend growth is expected.
Midas Verdict: Kitwave is a success story in the North East and caters to shopkeepers, café owners and diners. It achieved strong growth as a private company and has continued in that vein since listing three years ago. At £3.42, the shares are a buy.
Traded in: AIM Heart: KITW Contact: kitwave.co.uk or 0191 259 2277
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