After months of agitated and often acrimonious deliberations, Londis shopkeepers have finally sold the chain to Musgrave for £60m (US$109.1m). The Irish group will be pleased to have won a slice of the lucrative convenience store sector, but to succeed in the long term it must look to take Londis upmarket.

The Londis chain of 2,200 convenience stores and supermarkets is set to lose its mutual status after the shopkeepers and distributors who own the company voted with a 97% majority to back a takeover offer from the Musgrave group, owner of the Budgens chain. Under the terms of the deal, each of Londis's shopkeepers will receive a windfall payment of £31,000.

The decision to accept the offer concludes six months of very difficult negotiations. Under the terms of a previous deal, four of Londis's directors agreed to sell the company to Musgrave for £40m. However, the devil was in the detail of this agreement, as the four directors were set to pocket £5m each, with the shopkeepers receiving only £10,000 each. The shopkeepers were distinctly unenthusiastic about this proposal, correctly sensing that they could gain a much improved return if they held out for a better offer.

The shopkeepers formed the Londis Shareholder Action Group, and forced the Londis board to withdraw its support for the initial bid. Since Londis is a mutual company, it is supposed to be run in the best financial interests of all its members. The four directors involved stood down from the board.

Since making a new offer of £60m to the LSAG, Musgrave has held a number of roadshows to explain its plans for the chain. These include a greater focus on fresh and higher quality chilled products on the shops' shelves.

This is in line with growing consumer demand for quality as well as convenience. Convenience stores are no longer the sole purveyors of convenience items, and relying on such offerings is no longer sufficient to ensure growth in this competitive channel. Musgrave's plan to reposition Londis as a premium retailer could well hold the key to a successful future for the chain.

(c) 2004 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.