Former Mad Butcher store placed in liquidation facing high costs and low margins

Tuesday, 16 May 2017

A former Mad Butcher franchisee was not making enough money due to rising costs and low profit margins, liquidators say.

The company which formerly operated the Mad Butcher store in Papanui, Christchurch, went into liquidation last week.

Insolvency Management liquidator Wayne Deuchrass was appointed the store's liquidator last week, but at the time said it was too early to say what had happened.

Veritas Investments chairman Tim Cook was overseas and could not comment on the matter.

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* Mad Butcher Silverdale placed into liquidation**

On Tuesday, however, the first liqudiators' report for the store said it had ceased trading earlier this month after the franchisor was granted an injunction against it by the High Court in Christchurch.

The store had operated for about two-and-a-half years before this, the report said.

'But increased operational costs combined with inadequate margins and funding costs ultimately lead to declining profitability and insufficient cash flow to pay debts as they fell due.'

It was estimated there would be a $660,000 shortfall to creditors.

Mad Butcher stores in Napier and Dunedin have been sold by their respective franchisees in the past six months while at least eight stores have gone into liquidation in the past couple of years.

In February, Veritas Investments made an after-tax profit for the six months to December 31 of $1.2 million.

This was a $6m improvement on the $4.8m loss it had made last half-year.

Cook said at the time the market the Mad Butcher faced was competitive and supply shortages had create challenges around product choice and pricing.

This issue was highlighted at its annual meeting last November, when Cook detailed tight supply in the beef and lamb markets, which increased prices and made it hard to offer effective promotions.

Chicken, meanwhile, had faced oversupply and prices fell, which hit revenue.

The two main supermarket chains had also seen competition 'intensified significantly', he had said.

'The board's focus is on ensuring profitability within each store and we are working closely with franchisees to support and maximise their performance.'