Boots on march into Europe

BOOTS, the drugs and toiletries retailer, is poised to expand its contract manufacturing division. It will announce a continental acquisition within the next few days.

The deal is expected to be the first of several aimed at dramatically increasing access to European retailers for its cosmetics and toiletries.

The purchase, understood to involve less than pounds 10m, marks a return to the continent, where Boots has had a mixed history. In 1993, it pulled out of retailing in France, selling its Sephora chain of health and beauty shops.

Boots sees considerable growth prospects for its contract manufacturing business, which makes private-label products for rival retailers as well as own-brand products.

However, winning customers overseas has proved notoriously difficult, because continental retailers prefer to source locally. Boots hopes the imminent deal will resolve this deadlock.

Private-label toiletries on the continent make up a tiny share of the market, where big-name brands are preferred. But their share is growing fast, especially in France, Spain and Germany.

Boots is one of the biggest private-label manufacturers in Europe. The division made operating profits of pounds 17.8m on sales of pounds 216m last year. As well as toiletries and cosmetics, it also makes over-the-counter drugs.

Contract manufacturing could be a useful growth area for Boots, whose reputation in the City has been tarnished by its failure to find a successful second string to match its cash cow, the Boots The Chemist chain.