Stress, distress and success of running a food business
Success is not final; failure is not fatal: it is the courage to continue that counts.
Winston Churchill
Over the past thirty-five years that I have been in retail, the world has changed greatly. The retailers dominate the retail landscape. Tesco has 28% market share of UK grocery but no brand has more than 1% — power is in their hands. £1 out of every £8 spent in the UK is spent in Tesco!!!
The consumer has changed greatly over the years. He/ she is now a shopper in charge of the decision-making process far more than ever. Brands do not hold the same dominant position that they once did — so what’s changed?
Massive proliferation:
• Number of products on offer — there are so many
more leading brands, challenger brands and own label. Coconut water started out as new in 2004 launched by Vitacoco — closely followed by a number of challenger brands; and then the big boys such as Innocent and retailer brands had offered variations. Indeed, the Innocent brand itself wrote the definitive book (in reality it’s great — A Book About Innocent) on how to launch a smoothie brand and it dominated the market until the own-label boys developed alternatives. And then, challenger brands such as Savse, found niches within the category that Innocent had effectively created — nipping away at Innocent’s dominant position creating a £10m brand of their own.
- Number of ways of shopping — when I began my career at Tesco in 1986, we had about 350 stores. Now there are over 3,500 in the UK alone, not to mention overseas — and these are subdivided into Superstores, Express, Metro, online, etc. As I write, they are also in the process of bidding for Booker which will add further complexity to the offer. And this is just classic retail — there is also the growth of Amazon, home delivery, meal kits such as Hello Fresh, etc., etc. Just Eat turned over £370m in 2017 purely from delivering other outlets’ takeaways.
- Ways of promoting — when I was young, there was only TV in the afternoon and evening and only three channels — BBC1, BBC2 and ITV. Now I believe there are over a thousand on my free sat box. As a brand manager, there were four ways we would promote a product — TV advertising, press advertising, PR and in-store promotions. Now, of course, there is the development of social media, and the ability to reach the customer with your message, becomes infinitely more complex. Once, we would just advertise on mass media and hope someone read it. John Wanamaker said “I know half my advertising works but I don’t know which half!”. But now you have the ability to target your message to one specific person, or ten or twenty.
- Growth of private label — there are some markets that reign supreme on brand and we will look more at this in Chapter 5. But suffice to say that over 50% grocery is private label although the growth has reversed over the last couple of years.
- Paradox of choice — the change in buyer behaviour. When I was at university, I did a whole module on the psychology of how people buy and how to make it more effective. There are more and more books written on this subject and also the paradox of choice and information overload. The consumer is in charge. She doesn’t have to rely on the advice of the local shopkeeper — which was just that: local and biased! Remember the BBC’s Open All Hours programme where Ronnie Barker’s fabulous Arkwright was always coming up with creative schemes to sell more products? Now there are online reviews to discover the best products, mysupermarket.com to find the best price and numerous other ways to inform and enable the customer. There is a wealth of information to turn the buyer into a true shopper — informed and able — and yet so overwhelmed by all that knowledge and the paradox of choice. I think this is why John Lewis so successful — other than its inspirational Christmas adverts about penguins and trampolining dogs, of course. You can still go and shop there safe in the knowledge that their staff are well trained to help you find the best product and “Never knowingly undersold” means you don’t need to worry about the price — an easy shop.
So, what does that mean to you working in food businesses, trying to make a success and make your profitable way through?
YOU NEED HELP!! And here it is, in the form of my book — Recipe for success. I have written this book for you.
Before we get into the detail of the book, I want you to think about the three possible outcomes for your business which form the title of this first chapter — stress, distress or success?
Which one do you want to choose for your business?? I have lived through all three with different clients over the years and want to ensure that once you have finished reading this book you have the plan for only one — success — hence the name of the book — Recipe for Success. But let’s think about the other two first!
Stress
The definition of stress is “a state of mental or emotional strain or tension resulting from adverse or demanding circumstances” English Oxford Living Dictionary. I often use the definition that it is the feeling of not being in control — pressure is great and stimulating but when it overwhelms then it becomes harmful.
It is likely you are reading this and nodding your head at this point and saying that IS the food industry. By its very nature of being fast and dynamic, there are going to be high pressure moments and these can be stimulating and rewarding. Many people in the food industry love the adrenalin rush, the need to solve problems and the high of success (myself included!).
But real stress is when you can’t cope with the rain of pressure and then it becomes a medically bad thing.
Everyone knows when they are stressed — can’t sleep, always tired, more headaches than normal (certainly true in my case). Maybe you dream about the particular situation. Sometimes you extrapolate and lose all sight of reality — I know I certainly have on several occasions in my life where I am not in control of the situation and a retailer is threatening to delist, we have a product recall or total inability to supply.
And what are the things we worry about?
- Losing business
- Falling out with key customers (and the potential of lost business)
- Product recalls
- Bad press coverage
- Business going into distress (see next section!)
- Personal impact — maybe getting sidelined from promotion or worse, getting sacked!
All of these are caused by fear of failure and often a lack of structure in the business to cope with the challenges that life throws at us. When I worked at ichiban, the MD had a catch- all for when things went wrong — and called it the “f***-up fairy”. I absolutely loved the description because it was said with a degree of sarcasm and cynicism, i.e. he meant how has this particular situation occurred without our being in control of the situation. Had some magical fairy come down and just created havoc or actually was it the fault of the managers who had missed some critical control point or understanding of the situation that had meant a disaster had ensued? After a few months working with the business, implementing new systems, putting in the right people to run them, the fairy did not visit so often — but she is definitely very stressful and in Chapter 11, we look at how you can protect against her!
Distress
When I started writing this book, I had never heard of the phrase “distress” being an actual term for a company that is struggling and in danger of bankruptcy. BegbiesTraynorspecialises in helping distressed companies and publish quarterly numbers for various industries including food. In Q4 2016, UK’s food and beverage manufacturing industry, which supplies the major UK supermarkets, showed a 13% increase in “significant” distress over the past year, with 5,986 businesses now struggling, compared to 5,312 at the same stage last year. The research indicates that small suppliers have been most affected, with SMEs making up 94% of companies in distress within the sector. That’s a lot of people like you and me sitting at their desk worrying about what is going to happen to their business.
The key indicators of distress are as follows:
- Decreased profits — common in the current climate of inflation, Brexit, increased living wage and other financial pressures
- Falling sales volumes and losing market share — possibly losing to other more nimble brands/suppliers and/or trading in a declining market
- Pay cuts and freezes — apart from, of course, the ever- increasing living wage
- Loss of regular customers
- Cash flow difficulties — suppliers insisting on proforma
- This can be a difficult situation not just for businesses in distress but also start-ups — both of whom may have poor credit ratings
- Redundancies and loss of key personnel as people realise that the business is not doing well
- Factoring invoices to try and support cash flow — many small businesses use factoring to enable them to overcome cash-flow difficulties but when the average food company net profit % is about 5% then giving away 2–3% is a significant amount to give away unless you need that cash flow
- Borrowing to pay off existing debt
CASE STUDY
The company — I was working with a frozen food company in the North-East who had previously been in administration and had been given a new lease of life with new owners. The workforce worked tirelessly on their factory, rebuilding it from the ashes literally as it had suffered a fire. They developed new products, sold them into both retailers and brand owners and had a factory that achieved a positive audit on its first attempt. We had a great management team and quality products.
The problem — there were two issues surrounding profitability and consequential cash flow. The products had not been costed properly and the customer agreements had very long notice periods. Disaster struck as the two key ingredients — wheat and beef, the two key components of this company’s production — went through the roof in terms of inflation. I tried to override the customer agreements and negotiate through price increases but they were rejected.
Slowly the focus of the management team changed — we were managing supply, not on orders, but on what raw materials we had available. Some suppliers continued to be supportive but others moved on to proformas. We factored invoices to try and improve cash flow and spent our focus prioritising payment.
The solution — sadly, our first case study of the book does not end happily. The situation did not improve and the company went into administration, leaving many workers out of a job and many creditors out of pocket (including myself).
It was a horrible experience and I learnt many things about contract negotiation, product design and resilience at pushing through inflation — the sad thing is that the retailer who would not put up their cost prices for us, was forced to move to another supplier and in less than two months their retail prices went up by 30%.
One of the book’s key purposes is to help you avoid ever getting into the situation of distress and if you do get into trouble, as risks need to be taken, you will know how to find your way out again. Which leads us on to the happy place of success…
Success
So how do you avoid the stress and distress of the failing business and experience the joy of success of an evolving, profitable one?
Knowing it is running like clockwork with profitable products flying off the shelf and happy retailers and consumers alike! I developed the POWER model of success:
P — Product
The most important element of your business. Your business needs to sell great food that meets the needs of your consumer. Those needs may change but if you have an amazing product then retailers will want to stock you and customers will want to eat it. It is not always that simple, of course, as the needs of consumers change, competitors come and steal from your category, products come in and out of fashion and your once cheap commodity that you made it with becomes unbearably expensive. However, if you can take charge of your product offering, you are halfway home to taking charge of your business — we talk a lot about this in Chapters 5 and 6 and then the challenge of evolving to meet the market needs in Chapter 13.
CASE STUDY
The company — one product that I believe is pretty unique and has stood the test of time is Marmite. I talk a lot about Marmite in this book as I believe it is, in some ways, the perfect brand that has stood the test of time. It evolved as a by-product of the brewing industry being launched in Burton-on-Trent where there were a number of brewers and a lot of brewer’s yeast! It has a unique packaging shape and a name that references the pot and not the actual product. Maybe if it had been assessed in research, it would not have come to market as it is so polarising, yet they have used the “love it or hate it” theme in the advertising for over ten years.
The problem — how to keep evolving. The product is named after the shape of the packaging and let’s be honest, there is only one Marmite recipe!! No one has yet developed smoked BBQ Marmite or an avocado version!!
The solution — innovation around the edges!! The parent packaging has remained unchanged but there have been a number of customer-orientated changes e.g. squeezy bottles and little pots for the catering market (both Marmite shaped) or a variety of licensing opportunities — from crisps to chocolate.
So, they haven’t changed the product, just accepted its uniqueness and the phrase “something/someone is like Marmite” is now widely used. And due to this uniqueness, it commands a high price despite Marmite-gate, when Tesco and Unilever fell out over inflationary increases. It actually breaks some of the rules/suggestions that we make later in the book that you should meet customer needs — it is exceptionally high in salt but perceived as high in B vitamins so it is almost a health food, plus half the population hates it! Find another Marmite and to my mind, you have found product nirvana.
O — Organisation
When a business first starts up, there is usually an entrepreneur who has an idea and begins making it in their shop or on the kitchen table. They do all the work and then slowly begin to evolve, bringing in help. From there, the organisation will grow to meet the needs of the business organically until sometimes you have a complex structure that is unwieldy and complicated. The business targets may not all be aligned and people may have forgotten the point of what they are trying to achieve.
Similarly, the type of people a business needs will change and grow as the direction and strategy of the business evolve. So, taking the recipe for success of your food business means making sure your organisation is well structured, focused and well led which we will examine in Chapter 10. The people need to be well chosen to meet the needs of today and be invested in to enable them to evolve for the needs of tomorrow.
W — Well-being
Well-being is a strange one to suddenly introduce in amongst all this management speak but it is one for me that has been key to my success and survival during the tough days of f***-up fairies and difficult retailer conversations when the stress is high and joy is low.
It is critical to think about how you look after yourself as an individual — knowing yourself and how to take care of your well-being is paramount to success. There are many studies that show that people perform better when they are well rested, well nourished, fit and healthy. It is kind of obvious but not always thought about in the business context. And similarly, not just your personal well-being but also that of your staff. It is no coincidence that larger companies offer gyms on site, free gym membership and yoga classes in the lunch break. A team at the peak of its health and fitness will take much better charge than one that is exhausted surviving on little sleep and rubbish food.
E — Evolution
As discussed in the beginning of this section, we will focus on how to keep a business evolving in Chapter 13. It is a critical part of any business to keep understanding the changing needs of the customer and adapting product offer accordingly.
But not just the product… the organisation, marketing, even legislation, etc. The world is so fast moving you have to keep up and your business needs to evolve with it.
R — Results
I have talked about the need for a well-aligned team with focus on the same end game and nothing is more important to get results. Chapter 11 talks about what type of targets you need to set and how to monitor them. How can you know if you are doing well if you don’t have a detailed breakdown of your profit margin by product possibly by day or at least by month?
Some products don’t have a variable cost — the line is set up and it runs off a batch and that is that. However, if you take sushi as an example, the profit can vary by day and by season due to the volume variations — more sales on a Monday as people are being healthy and more in the height of summer and the lowest ebb at Christmas. The cost of the product doesn’t really change in terms of raw materials but the labour costs vary as the efficiency of the lines changes with less product made per shift.
It is important to understand the drivers of your products’ costs and potential risks — currency/inflation, etc. But it doesn’t just have to be financial numbers — quality, supply and even staff absence can all be measured and quantified.
You need systems in place to do the measuring and
people who are brought into the targets so that they know why they are working with them and how they are going to help make their life easier.
So, in summary, this book sets out to find the recipe for success and how to avoid the stress and distress of running a food business and to give some insights into how to create success and enjoy being part of an amazing, stimulating industry.
Exercise
Divide a piece of paper into two (or use two PowerPoint slides or Pinterest boards or whatever is your thing) and list out in words, draw pictures or use photos and build your model of:
– what success looks, sounds and feels like
— what stress and distress look, sound and feel like
for you. It is good to have something that you want to go towards and something you definitely want to work away from to help motivate you when times get tough and the f***-up fairy comes.
So, now you have your vision and what’s going to feel good; we had better find out where you are now — in Chapter 2 which is available for order on Amazon — https://goo.gl/cCY7qC
