Expanding comfortably

22 June, 2007
Is it time to open another shop or would it be better to preserve the status quo? This is a dilemma that faces most businesses sooner or later, says Andrew Don
Page 18 
Staying small has much to recommend it: better control, fewer headaches and the ability to sleep at night. But for those with stamina and ambition, expansion can bring with it a bigger income, status and perhaps the realisation of dreams.
As Sandy Birnie, chairman of bakery giant Lyndale Foods says, some of it will be to do with the aspiration of the owners. "The upside is you create success and greater wealth, but if you get it wrong, it can destabilise your business," he says.Anyone considering expansion needs to ask themselves if they have a management team with the capability to be able to expand. "It's very different running a retail baker with half a dozen shops than going through the steps of 20, 100, and then 200," says Birnie. "Just because you've got one very successful location does not mean you can replicate it somewhere else. Owner-managed businesses find it difficult to hand over to the management team to do that."Once satisfied that you could staff a larger business, you need to understand why your retail bakery is successful in the first place, he says, then try to find a location that is similar so you can replicate it. "If you've got a highly profitable neighbourhood bakery you wouldn't open that in an urban high street, because the product offering would be very different and so would the consumer."Also, if a baker is considering opening one further outlet, there might be a temptation to open others at the same time. But this is not a good idea if the business has not got lots of surplus cash. "Most people would advocate you do it one at a time and that the next one beds down before you start the one after," says Birnie.Those avid for expansion need to bear in mind that, on average, shops do not tend to make a profit until at least a couple of years in and the danger is that the business can run out of cash. Other considerations include rental costs, the deposit and whether there is a need to pay a premium for the desired site.COST CONSIDERATIONSConsideration should also be given to the terms of leases or freeholds. A six- to nine-month deposit is often payable for a good location - and then a premium on top if lots of people want the same premises. After that come the fit-out costs, which are a huge consideration.Birnie says there is no such thing as the best location to open a shop. Each one is different and it is the marriage of the location with what the bakery has to offer the consumer in a given area that counts. A combination of the best location in the area, but the worst product offering, or vice versa, will not work. It is the relevance of the product to the audience you are trying to attract in any location that is important. Those that get it wrong are those that think one size fits all, Bernie believes.MARKETING PERSPECTIVEKeith Joplin, managing director of retail consultant Joplins, based in Cleckheaton, West Yorkshire, says a retail baker opening a second shop should make sure the new unit is not far from the bakery or the first outlet. "They need to look at it from a marketing perspective and not just go on gut instinct."Joplin says there is great satisfaction from success, usually measured in terms of number of properties and turnover, but it is crucial to ensure the second outlet does not drain the profits of the first one.He agrees with Birnie that staffing will be one of the major considerations. "Anyone operating an independent business will tell you that the actual running of the business is not a major problem, but employing people can be," he says. "Someone running their own business has a passion for their customers, which is usually why they are successful as an independent shop, but when you expand, you are taking on other people. Can you find people who match your enthusiasm and standard of service?"BB Grout, an 11-strong Essex-based chain, opened its 11th shop, a freehold in Eastwood, last November. Director Giles Grout emphasises the importance of not having shops too far apart. All the shops are within a 12- to 15-minute drive of each other. Grout says successful expansion comes with experience. The new shop, which is in a secondary parade, has a lot of housing nearby, a school and a butcher, but he says it is still a gamble whether it works or not.There are few chains that have not made mistakes and BB Grout is no exception. "We opened one shop and went with it for two years, but it was not right and we made the decision to get rid of it."The outlet did not make enough money, he explains, and it was a long distance from other shops, so it did not work logistically as the location was wrong for the type of shop. Fortunately enough, the company was able to sell on the lease fairly easily, virtually completely recovering the outlay. "But it took a lot of bottle," Grout admits.no set formulaHobbs House Bakery, based in Chipping Sodbury (Glos), does not have a set formula when it comes to expansion. Sam Wells, director, says the firm has opened new branches as and when it has felt able to cope and when the right unit became available.Wells says the company is trying to make all the shops' ranges similar because people like to buy the same products in each of its shops. The last store it opened, its fourth, was in Tetbury two years ago, where the last baker in town wanted to retire. Wells said it was a typically old-fashioned bakery, with a basic range at the time."The owner was desperate not to see his bakery turn into an estate agent or an antique shop and pleaded with us to take it on. We didn't particularly think it was the time to open another shop, but we opened it and it took off very nicely." He says the customers took a while to adjust to a newcomer in town. "But they now think Hobbs is the best thing to happen to Tetbury in years," he says. n----=== Useful contacts ===Health and Safety Executive information line0845 345 0055Disability Rights Commission Helpline08457 622 633Royal Institution of Chartered Surveyors0870 333 1600----=== Legal considerations ===National business advice service Business Link stresses the importance of understanding the legal obligations and restrictions for business premises.1) You must comply with building, fire and health and safety regulations, as you are responsible for the health and safety of employees and visitors.2) Stamp duty is payable on commercial leases and you may be liable for business rates, although in rented premises, these may be paid by the landlord.3) You must take reasonable steps to make your premises accessible to all, including the disabled.4) You must comply with the terms of any lease or licence agreement: there may be restrictions on times when deliveries are allowed or how you dispose of waste, for example.



Site Search

Webinars 

    Insights from the Bakery Market Report 2016

    You can now purchase the Bakery Market Report 2016, which offers insight into the retail bakery trade in the UK.