Belle of the ball

30 July, 2010
RGFC subsidiary Hayden's Bakeries is fixing its 'broken' business model to balance the demands of major premium retailer supply with its hand-crafted principles. Andrew Williams reports
Page 20 

MD Paul Smith calls Hayden's Bakeries a "bit of a Cinderella business" presumably not in sufferance at domestic abuse from its siblings, but rather, one that was badly in need of a makeover. Now it's had its missing shoe slipped back on, Hayden's is fit again to grace the premium retail ball, having emerged from what Smith refers to as "years of under-achievement".

Two years ago, the bakery found itself in a perilous position, with its production and NPD struggling to keep pace with rapid growth, and was losing the confidence of customers. While it produces over 100 sweet products daily, from croissants to yum yums, pastries and tarts, broadly divided into two families bakery counters and chilled cabinets in the likes of Waitrose and Marks & Spencer the scale of its offer became increasingly difficult to manage.

At the time of its acquisition by the Real Good Food Company (owner of Renshaw and Napier Brown) from RHM in 2003, it was turning over £10m, but losing £1m. The group spent the first few years getting the business back to profitability. In 2004-5, it made £0.5m profit on a turn-over of £12m. But the business stalled when it looked to kick on; while it was turning over £18m in 2008, it was beset by a "broken model", says Smith. "When I joined the business 18 months ago, there was a tremendous amount of what I call non-value-added activity; it was hand-crafted to the extreme I mean, utterly labour-intensive. Every pound of sales would add a disproportionate amount of cost. To break away from that, we had to find ways to semi-automate. We need to modernise within the facility; we will always retain a very strong hand-crafted element, but to do that we need space for growth."

The crammed premises in Devizes recently took on an additional 50% of space, around 30,000sq ft. To do this, it has engaged equipment partners to look for the quickest return on investment on new kit, to go online in 2011. A new IT solution is being introduced over the next two years, at a cost of £250,000 to bring Wi-Fi communications throughout the business. Almost no part of the company will be unaffected.

"Our business model couldn't cope with the rapid expansion," he admits. "If people are moving racks around from one area to another, clearly that's something we can automate. That's very exciting, because it does not represent a threat to the existing workforce. We clearly need a lot of skilled people as we move forward."

Involvement and training

In fact, one of the key planks in its new three-year strategy is investment in staff training and greater staff involvement. "I would never suggest that the previous management team were doing things wrong," says Smith. "But what we have got is a very simple joined-up strategy. Unless the whole team in the business endorses the strategy it's very difficult to take anything forward, and I think that was lacking in previous years. We've taken that strategy down to every single individual in the company and given them the opportunity to comment and critique it. They understand what we now need to do and they're getting on with it," he states.

Hayden's is on track to hit £23m turnover this year, with double-digit growth predicted for each of the next five years. Last year it launched 40 new products for Waitrose in two frantic weeks of NPD in October, including 14 premium 'Seriously' products a vote of confidence in an out-of-form business. "I've never known so many products launched in such a short space of time. I'm not saying we want to do that every year! It was exceptional," recalls Smith.

"When I joined, there had been a loss of customer confidence. Particularly Waitrose had lost the confidence that Hayden's would be able to deliver the growth they needed and the NPD they expected. There was a lack of strategic direction from the business it wasn't clear how we wanted to turn the business into profitability. And the business was losing money."

Those areas needed urgent rectification. "In 2009, we put some very basic principles into place to restore customer confidence; that was a relatively simple thing to do. We talked continuously to the customer and established what they wanted, and delivered at the times that we promised. We were able to launch 40 new products purely because confidence had returned with us."

In fact, M&S has been holding up its yums yums as an exemplar product. "Several sectors in food have not been performing well for them, as you'll know. But M&S uses the yum yum as an example in internal presentations of sustained, continual growth over and above the market in bakery. In fact, they describe it as an iconic product." Christmas was a boom time too, with Hayden's having to supply M&S with an additional 25,000 mince pies in the final few days before Christmas.

"In terms of our ambition, 2010 will show something like a 30% growth over 2008, but most significantly, the area we'll be concentrating on within Hayden's is to increase the EBITDA over the coming years," he says "We see no reason at all why our ambitions shouldn't be around those levels; there are other examples in the industry, among our peers, where that sort of return can be achieved, and we do not think that we are in any way inferior to the competition."

Areas where he thinks it's better include a fresh fruit preparation facility on-site that "is absolutely unique", says Smith. "We will never move away from the hand-crafting and finishing, because that is our USP. With fresh fruit tarts we can really exploit the hand-crafting skills that we have at the bakery. We will continue to add to those ranges, but we will stick pretty much to our core competencies." Elsewhere, it claims to have made big improvements to its Danish pastry range. "We think we're world-beaters and intend to exploit that opportunity."

Foodservice in sight

New families of products are being developed, Boots has joined its customer base and the company has "very strong aspirations" to build in foodservice, having signed up Costa Coffee.

"We do see a huge synergy with the types of products that we manufacture for retailers. If you look at our retail customer base of Waitrose and M&S, there are comparable quality operators in foodservice, and we're going to target them as well as our retail customer base."

Thankfully for Smith, it's a confidence shared by his chairman. "We always knew there was potential for a £25m production opportunity in the factory as it was," explains Pieter Totté. "Really, we needed to make a step in growth and I think we failed to recognise for two years what the business needed. A lot of businesses go from 100 products to 10, the products are re-engineered and they take cost out. We've gone the other route because we're producing 100-125 different products in 19 different categories. That's attractive to the retailer, but it's much more difficult to run. We're going into the upper end of the marketplace, which is not easy to manufacture for. But if we can tackle that, we'll have a unique business in the sector."





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