CASE STUDY:After a decade in pursuit of their dream of running their own Michelin-starred business, Clodagh and Gerry Murray were well on their way to success. Then the economic downturn hit, and their plans were thrown into disarray
GERRY AND Clodagh Murray met as students in catering college. Both were passionate about food and their dream was to become accomplished chefs with Michelin-star experience. The two went their separate ways after college. Gerry went work in London while Clodagh went to France to hone her skills as a pastry chef. Over the next eight years they kept in occasional contact as both travelled the world to build their experience.
On the eve of her 30th birthday Clodagh received an e-mail from Gerry inviting her to come and work for him at a chic new bistro in Sydney where he had landed the head chef's job. Feeling it was time for a change, she accepted. Two years later, the couple married and came back to Ireland in early 2007 to fulfil their ambition of running their own business.
As a long-term goal, Clodagh and Gerry envisaged buying a property in the west of Ireland which they could run as a luxury B&B with the emphasis on fine dining. Doing it properly, however, was going to be an expensive venture and they needed to make some money first.
Gerry felt the best way to do this was by replicating an idea he had seen working successfully in Australia. It was a twist on the fast-food theme aimed at time-pressed office workers who wanted to eat quickly but healthily. Location was key; the premises had to be in or close to a busy commercial area where food choices were limited. The added advantage of this type of location was that it effectively closed down on Fridays, meaning no Saturday or Sunday trade. This would free-up the couple to generate additional income by providing a private catering service over the weekends.
The Murrays quickly discovered that rents in Dublin were even higher than they had anticipated, and that the premises on offer were relatively modest for the money involved. They financed the start-up from their savings, but the high cost of everything meant they needed to start making money as quickly as possible. But their plans to ramp things up gently over a 12-month period as they became familiar with the market quickly bit the dust.
The deli's main bills of fare were soup/sandwich options with an Asian influence, a vegetarian salad bar and a small range of exotic fruit-based desserts. About six months after the deli opened, the Murrays were approached by a large software company operating in the area. It was planning to close its canteen and wanted to offer an online sandwich ordering service as an alternative. Seeing the potential of the idea, the Murrays decided to spend some of their dwindling cash on the necessary website to support the service and to buy a second-hand golf buggy to act as a delivery vehicle.
They also began getting requests for frozen meals from regular customers, and installed a small freezer unit in the deli which they stocked by making extra portions when doing catering jobs. This turned out to be a steady but lucrative addition to the bottom line, as did the regular demand for finger food for lunchtime meetings from offices in the area. They began a concerted marketing effort to make people aware of their online sandwich service and following demand subsequently extended it to include salad boxes and desserts.
By the end of 18 months, the online business was generating twice as much income as the deli. Enquiries were coming in for sandwich drops from office complexes in the greater Dublin area, and the Murrays were beginning to see the potential to significantly expand this strand of their business. The catering side of the operation, which focused primarily on Thai cuisine, was also gaining momentum and looked set to overtake the deli as the second biggest earner for the business.
While the business was growing well, the high rent being paid for the deli space remained an issue. Demand for commercial and retail space in the area was dropping and this was being reflected in lower rents.
The Murrays approached their landlord for an early review, but he refused to budge on the terms of the agreement. As they were bursting at the seams in their current unit, they asked him to give them some adjacent vacant space in lieu of a reduction. Again he refused. The couple found themselves trapped by a lease that threatened to undermine the potential to develop their business.
Disheartened by this turn of events, Gerry Murray phoned a friend and restauranteur in Sydney to seek his advice. Steve Webb listened to Murray's tale and then delivered a startling suggestion. He advised the couple to shut the deli, to take a hit on the remaining rent and to move to a new premises where they could house both the sandwich-making business and the catering operation in comfort.
Webb acknowledged that this was going to put a huge financial strain on the couple, but said it was a gamble worth taking if the Murrays' growth projections for their business were accurate. Webb's view was that they should focus on the most profitable aspects of their business (sandwich making and catering) and build them to a point where they could be sold off to fund the country house dream.
The Murrays could see the sense of relocating to a larger food-preparation area. Efficiency and productivity were suffering in the current kitchen because the space was so tight and working conditions were far from ideal. However, apart from the cost implications of such a move, the couple were reluctant to close the deli. It was the public face of their business and they had worked hard to build its reputation as a foodies' hot spot.
One solution is for Gerry to move to the new premises while Clodagh continues to run the deli and service the local sandwich drops from there. However if Clodagh is staying Gerry would need a senior experienced chef to replace her and this would be an additional cost. There is also the issue of funding. The couple are by no means sure they would be able to raise the capital required to finance such a large move in the current climate.
A second option is simply to stay put and to keep the business ticking over with largely manageable overheads until the economic situation improves. There is a third option (also suggested by Webb), but having heard it, neither partner really wants to contemplate it. Like certain other skills, talent in the kitchen is internationally mobile and both Gerry and Clodagh have impressive CVs. Both have extensive overseas experience and are highly employable. Even in a downturn, good chefs are in demand, particularly in wealthy private households where the remuneration rates are excellent. Given the uncertain future the couple face in Ireland, Webb suggested they should shut down their Dublin business completely, put their country house plans on hold for the next five years and go abroad to work.
But having invested so much time, money and enthusiasm into their Irish venture, this is not a prospect which either relishes. While no one could blame them for getting the timing of their return wrong, they fear that the feeling of failure would be overwhelming if they threw in the towel now.
How should the Murrays proceed?
THE EXPERTS' ADVICE
Gerry and Clodagh have the necessary skills set . . . However, they need to make some hard choices or they will end up frustrated, busy fools
GERRY AND CLODAGH have a strong online business which is already generating significant revenues, while their catering business is also performing well. They have lots of options open to them while still remaining in the current shop. Now is not the time to be taking on more debt or starting a new business. It should be possible to double sales if they do the right things now.
As a first step, the Murrays should join a support group such as Retail Excellence, which will provide them with a retail network to tap into where they can share their experiences and avail of expert advice on how best to tackle landlords.
Rent is being paid 24 hours a day, and they need to ensure the premises is being used for as many of these hours as possible. They should do all of their ingredient preparation at night so when morning arrives and customer orders start to come in, the process is simplified. Third-party retail supply should be considered, especially if night production is in place. There are plenty of small convenience and coffee shops who do not have the space or expertise to make their own food. The Murrays should definitely explore building a network of third-party supply to these outlets, which could be serviced early each morning. The frozen meals also offer large third-party potential.
The Murrays have built a strong network for providing lunch for staff in the buildings around them. Many large businesses do not have facilities to cater for board meetings, work lunches etc, and they should tap into this by using their existing contacts.
Both are also qualified chefs and there is no shortage of people wanting to attend cookery classes, so the deli could be used as a venue for evening cookery classes. Many of the good cookery schools charge €50 per customer for an evening session. This could generate additional revenues.
The existing data base of customers is an invaluable asset. This data base needs to be harnessed and customers reminded regularly by text and e-mail of price promotions and new products with the objective of increasing customer frequency and spend. A loyalty card to reward good customers should be considered.
While the deli is the third-best performer in the mix, it is not a disaster. But they need to get onto the streets and use leafleting and "guerrilla tactics" (such as offering those going to work a free mini muffin, etc) to attract new customers. The old-fashioned technique of hiring someone to hold a sign directing customers to the premises really works.
Gerry and Clodagh are likely to be working very long hours. They need to take care of themselves as well as the business. That means getting support to help handle extra sales.
- James Burke
It can be argued that "now" is always a good time to return Ireland to start a business. If there is an identified need then the business will succeed. Of course, it will take time, mistakes will be made and it will not be easy.
Gerry and Clodagh have the necessary skill set and having viewed their operation, it would seem that they are more than halfway there. Turnover is growing, they've outgrown their initial premises, new opportunities are emerging and the business is profitable if only marginally. These are all positives and they should focus on them. However, Gerry and Clodagh need to make some hard choices or they will end up frustrated, busy fools. They should ask themselves some critical questions. For example, how important is the retail outlet to their business? Do they want to be in retailing, manufacturing or distribution?
Gerry and Clodagh have a number of options to pursue and they should focus on the route or routes that show the strongest growth potential with acceptable margins. The further one moves from core business, the more that core will slip. If the current retail outlet is too small for all activities, they should take on separate responsibilities and have two locations, one for retailing and one for "back-office" and manufacturing activities. Commercial units fitted out to food production specifications are easily come by in the suburbs at prices to suit all pockets. A local Enterprise Board would also be only to willing to assist them to get started.
If manufacturing is the chosen route, my experience is that retailers do not wish to inadvertently enhance the brand of a competing retailer so the retail outlet might have to go out of necessity. Iconic brands such as Bewleys have used the connection well but they were the exception rather than the rule.
If retailing is deemed to be vital to the business then serving notice of closure to the landlord might be a good way to grab his attention and renegotiate the lease. There are ways and means, especially in this economic climate, to exit and some sound legal advice might be required.
- Vincent Cleary
THE EXPERT'S ADVICE
Gerry and Clodagh have the necessary skills set.....However, they need to make some hard choices or they will end up frustrated, busy fools
GERRY AND CLODAGH have succeeded in growing their food business in a very tough market in very tough economic times. This all goes to prove that change, even downward economic change offers opportunities. The couple have demonstrated terrific ability to read and take advantage of market changes. Creating an online lunch delivery service to capitalise on companies' need to reduce costs is genius.
The couple have also proven their capability to innovate in a number of areas. From an inauspicious start in preparing and selling healthy deli food they have added a range of new food options and services. By so doing they have, perhaps accidentally, stumbled into creating new and more profitable business models in their online and catering businesses. While the retail deli provided the start for Clodagh and Gerry, their future is with the more profitable online and catering businesses.
As with all businesses, success brings its own challenges and clearly Gerry and Clodagh's biggest challenge is access to sufficient food preparation space to continue to grow their business.
For me, there is only one option and that is to continue to grow the online and catering businesses. To do this, they must get a new larger food-preparation premises and Clodagh and Gerry should continue to work together.
This does not mean abandoning the retail deli altogether. Since the rent has been committed there are a number of options to make the deli pay its way. Option one involves subletting the premieses.
But in the current climate, it is unlikely that they will be able to recoup all of the rental. Option two also involves subletting the premises, but in this case Clodagh and Gerry would provide the new tenant with all the Murray's Delicatessan fresh and frozen food products. The downturn in the hospitality sector has left many people out of work and this could prove to be an attractive opportunity to people so affected. This option should allow Gerry and Clodagh recoup the rent and also make money on their food products.
In a third option, Gerry and Clodagh could retain the retail deli in their control and employ someone to run this business. The food could be prepared in the new premises and delivered daily. Having only minimal food prep in the deli will allow them to minimise outlay on staff as their new employee won't have to be a qualified chef.
Options two and three will appeal to the couple as it will allow them to retain their shop window and access to direct customer feedback, vital for continuous innovation and development of their business.
- Catherine Goodman
