About 20 years before he was roundly defeated at Waterloo, Napoleon allegedly described England as ‘a nation of shopkeepers’. The claim was considered offensive, Napoleon got his comeuppance and today, the UK is proud of its retail prowess.
In food and drink alone, there are around 90,000 independent stores across the country, catering to our last-minute, local and impulse needs. But we are a nation that loves to grab a coffee, a pint or a bite to eat too, and some 350,000 outlets provide just that service from the Highlands to the Cornish coast.
Kitwave helps these businesses to function, delivering food and drink from well-known brands to more than 40,000 corner shops, cafes and caterers nationwide. Petrol forecourts, care homes, gyms and schools are among the group’s customer base too but in each case, Kitwave is laser-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, a few miles from Newcastle, the company started in 1987 with a single cash-and-carry store. Today, almost 5,000 deliveries a day are made from 30 depots. Orders vary in shape and size but Kitwave specialises in small, frequent drop-offs, averaging £350 a go. Chilled and frozen products are particularly popular with retailers, while eateries source almost all their goods from Kitwave, bar fresh meat and fish.
The company’s range is extensive, with 44,000 individual products, from Magnum ice cream and McCain chips to crisps and Coke to onions and lettuce.
Choc full of products: Kitwave’s range includes Magnum, advertised by Kylie Minogue
Customers do not pay delivery charges so Kitwave makes money by adding a mark-up to the products sold. Margins are small, however, and many businesses prefer to have goods delivered than take trips to cash-and-carry outlets.
Results for the 12 months to October 31 prove the point. Sales rose 20 per cent to £602 million, pre-tax profits rose 39 per cent to £25 million and the dividend rose 21 per cent to 11.2p.
Looking ahead, there is plenty of potential for continued strong growth. The wholesale market is huge, with annual sales of almost £25 billion, excluding cigarettes. Large players account for more than half of revenues but that still leaves around £10 billion in the hands of independent operators.
Here, Kitwave is doing better than most, with growth that far outstrips its peers. The independent market is also deeply fragmented, with hundreds of small players owning one or two depots and serving local customers only. This presents attractive acquisitions for Kitwave, so the group has done 13 deals in recent years and more are expected.
Founder Paul Young, 67, is retiring this summer but his successor, Ben Maxted, has been with the business for more than a decade and knows it inside-out. A youthful 40, Maxted is keen to improve profit margins and productivity by making the best use of technology, from route mappers for drivers to headphones that help warehouse workers navigate orders more effectively.
Online ordering is on the up too, with average orders growing as customers are presented with a plethora of product options. There is also a pipeline of acquisitions, as Maxted and finance director David Brind have a broad network of contacts and can source deals before they hit the open market.
There will be no radical departure from Young’s tried and tested formula, however. Delivering thousands of goods to thousands of customers day in, day out is a demanding task. Plenty can go wrong and customers can be fickle. Kitwave’s success is built on developing relationships with its suppliers, understanding its customers and ensuring that goods are in stock and delivered on time to the businesses that need them.
The company joined Aim in 2021 and is reaping the benefits with greater recognition across its market. Brokers are optimistic about prospects, forecasting sales of £660 million and profits of £29 million for 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 North East success story, catering to shopkeepers, cafe owners and dinner ladies. It delivered 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 on: AIM Ticker: KITW Contact: kitwave.co.uk or 0191 259 2277
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