Liquor Barn’s New Owners Plan Conversion to a Boutique Motif

Liquor Barn--Safeway’s no-frills purveyor of cut-rate wines and spirits--will become more of a liquor boutique, according to the chain’s new British owners.

A long-rumored deal, consummated early Wednesday at Safeway headquarters in Oakland, will transfer ownership of the 104-store chain to the much smaller Majestic Wine Warehouses of London. This will make Majestic the first foreign-owned retailer to invade the U.S. wine-and-spirits business.

Majestic Chairman Giles Clarke put the cash purchase price at “slightly more than $100 million.” The sale is expected to be completed by mid-August.

Majestic intends to keep the Liquor Barn name for now, Clarke said in an interview. But the British owners will develop a wine- merchant approach to sales similar to what they use in Majestic’s much smaller shops in southern England.

Under this approach, sales personnel must be able to advise customers, and stores offer periodic tastings and meetings with winery representatives.

In contrast, Liquor Barn offers a warehouse-like setting and minimum markups on a vast array of labels, often with little or no sales help. That impersonality is a turnoff to serious wine buyers, said Paul Gillette, publisher of Beverage Hotline and the Wine Investor.

Clarke said he intends to bring in the “smaller chateaux” bottlings from France that are a Majestic specialty while offering more California wines in the United Kingdom.

“In England they’ve done very well,” Gillette said of the new owners. “Maybe they know something our people don’t know. If they do--and they succeed--it will be to the absolute joy of wine-and-spirits manufacturers, because retailers have been their whole problem” in terms of persistently flat sales.

Despite high sales volume, Liquor Barn has lost money for Safeway, Gillette said. That’s the main reason why the unit was put on the block by Kohlberg Kravis Roberts, the New York-based investment banking firm that bought Safeway last summer for $4.1 billion and has since been selling off assets to reduce debt.

In putting together the purchase, tiny Majestic took a huge mouthful.

“It’s the mouse swallowing the cat,” Clarke said of 21-store Majestic’s acquisition. “We’re now the largest independent liquor retailer in the world.”

Majestic had 110 employees and sales of about $20 million last year, compared to Liquor Barn’s 1,100 employees and $332 million in sales. Liquor Barn has 41 stores in Southern California, 45 in Northern California and 18 in Arizona, mainly in the Phoenix and Tucson areas. Clarke said all Liquor Barn employees will be asked to stay on.

Another break with Safeway’s grocery-oriented operation will be to use distributors to keep stores stocked rather than developing a network of warehouses similar to Safeway’s, Clarke said. “This should be staggering good news for the distributors.”

Clarke said a major aim will be to increase Liquor Barn’s share of the highly competitive Southland market. While the chain claims 19% of the market in the nine counties surrounding San Francisco Bay, it has only 9% of Southern California sales.

Clarke, 34, and his managing partner at Majestic, 36-year-old Esme Johnstone, intend to move their families to Northern California, the better to direct what will be the lion’s share of their business. However, Majestic’s headquarters will remain in London.

In selecting Majestic, Safeway rejected two other sealed bids, which one of the bidders, former Liquor Barn head Steven Boone, said were “in the mid-90s.”