Letting them eat cake

THE FRIDAY INTERVIEW:BRIAN HOGAN Kylemore CEO

IT’S LUNCHTIME at the new Chartered Accountants Ireland building on Pearse Street in Dublin and, inside the canteen, the midday rush is in full swing. Amidst the clatter of coffee machines and the high-pitched chattering of students, a composed Brian Hogan, chief executive of Kylemore, proudly surveys the scene.

One would have expected Cafe Kylemore to be a more suitable venue for an interview with the head of one of Ireland’s best-known cafe-restaurant chains but, as Hogan is keen to point out, the company is about much more than cafes these days.

“People hear Kylemore and they think of the cafes, but the company is a major player in the corporate catering business,” he says. “The future of the business is in contract catering.”

Kylemore entered the contract catering business in 2004. It’s now the main engine of growth for the company, representing 57 per cent of Kylemore’s overall business, a figure that Hogan hopes will eventually grow to 85 per cent. The remainder of the business is dedicated to the company’s 12 cafe-restaurants.

So why the move from cafes to catering?

The shift is typical of a company that has gone through various reinventions through its 90-year history.

Founded in 1920 by Brian Hogan’s grandfather, the company started out as a dairy. “My grandfather started from Fairview, when it was just fields,” Hogan recounts. “They used to bring the dairy products into Talbot Street and O’Connell Street and sell milk door-to-door, eventually opening a shop in Talbot Street where the family lived.”

The company changed its focus to bakery and confectionary when Hogan’s grandmother, spotting a gap in the market, decided to take advantage of the thousands of fans descending on Dublin for the all-Ireland final one Sunday. She baked some cakes, displayed them in the window and Kylemore bakery was born. “Probably the first Sunday trader,” Hogan quips.

In the 1960s the firm entered the bread business, making compounded breads and Vienna breads, and opening a central bakery on Store Street. The business ran successfully throughout the 1970s, and the family exited the dairy business. In 1987, Kylemore opened its cafe on O’Connell Street. Eleven more were to follow. It was around this time it sold off the bakery, which was being usurped by the advent of frozen and par-baked breads, and started producing par-baked products and supplying them to Cuisine de France.

Hogan joined the business at the age of 17, having worked there during school holidays. In 1978, he became chief executive and 10 years later bought the company.

In 1999, he oversaw the sale of a 50 per cent stake in the business to Jim Flavin’s listed industrial holding company DCC – “the best decision I ever made”, he says. Five members of DCC now sit on the company’s board, while Flavin, who has since stepped down at DCC, is a former chairman.

While the latest departure into the contract catering business is characterised by Hogan as a natural transition, was the conscious decision to switch focus from the cafes to corporate catering not born out of necessity? The late 1980s and early 1990s saw the heyday for Kylemore. In the age of Starbucks and other trendy coffee shop brands, have the Kylemore cafes lost their lustre?

Hogan staunchly defends the cafes. “They were, and still are, very sound businesses. We grew it to a level that we believe is the right level. We didn’t see the need to over-expand.Cafe Kylemore is a good business but like all retail it’s challenged at the moment.”

While the company accounts do not distinguish between the cafe and catering sides of the business, the directors’ report says the retail restaurant division was “down significantly on the prior year, primarily due to the economic environment” for the year to the end of March 2009, while the outlook for the upcoming years is “a further deterioration in the financial performance of the division”.

Overall, profits at the company plummeted last year, with a pre-tax loss of € 313,000 compared to a profit of more than € 9 million the previous year.

Hogan is particularly critical about the high cost of rents, which he says has been a major cause of the fall in profitability of the cafes. Kylemore, which has leaseholds on all its restaurant premises, underwent rent reviews on three of its premises in 2007 at the peak of the market. The result was a 50 per cent increase on the rent it signed up to five years previously. According to the company’s accounts, it is “actively looking to renegotiate these property costs in the current challenging times”.

Hogan insists there are no plans to shut any cafes, his focus is firmly on the catering business. Kylemore is the only indigenous Irish company operating in what is estimated to be a € 350 million market. The market is dominated by international companies Compass Eurest, Sodexo and Aramark, which owns Irish company Campbell Catering.

Is Kylemore holding its own? The figures suggest so. Revenues from the contract catering have grown from €5 million per annum in 2006 to the current annual level of € 19 million, while the firm secured some significant contracts in 2009 including UCD Smurfit Business School, Bank of Scotland Ireland, Chartered Accountants Ireland, the Royal College of Surgeons and Cork University Hospital.

This involves not just regular canteen catering, but also corporate entertainment – in UCC, for example, Kylemore runs 14 operations, including the restaurant, student bar, the staff common room as well as providing corporate dining facilities.

According to Hogan, Kylemore’s experience in the retail field is a key competitive advantages and one reason why the company is increasing its market share. “What we’re learning in the high street is feeding through to the contract side,” he says. “The typical PLC contractor works off a global plan. We’re seeing what’s happening on the street, in terms of consumer trends and spending, much faster.”

Kylemore has transferred some of the pricing mechanisms it offers in its cafe-restaurants to the catering side. “For example, we learned in the cafes that if you simply reduce prices people just buy the same and the spend goes down, but offering bundling packages encourages them to buy more.” The company has introduced similar bundles and meal deals in the typical office canteen.

In addition, Kylemore has moved away from the traditional pricing scheme that characterised the industry – the “cost plus” plan by which clients were charged an additional fee on top of the meals they sold.

Kylemore doesn’t charge a fee, and offers a fixed cost on the amount of meals it charges for. “This puts the onus on us to fill the canteen, while the client knows exactly what their costs are going to be, a major advantage in the current climate.”

The other unique aspect of Kylemore which gives it an edge over its competitors, according to Hogan, is its unusual corporate structure.

The merger with DCC, which means the listed company has a 50 per cent stake in the business, has been a huge success for both sides, he says. “DCC has seen a return well in excess of their investment, and we have had the advantage of having a PLC on board.”

Hogan is happy with the current structure and has no plans to cede further control of the business. His 26-year-old son is now involved, but as a sprightly 57-year-old, Brian Hogan has no plans to step down. “I love every minute of it. To me, going to work is like being on your holiday. It always has been.”

Name:Brian Hogan

Age:57

Family:Married, two daughters and one son.

Lives:Ballsbridge, Dublin 4

Education:St Pauls Raheny, Clongowes Wood College. Started working in Kylemore at age 17.

Hobbies:Golf and ski-ing

Unusual fact:At 50, he did a half Olympic ski jump – the four seconds in the air was the most exhilarating/frightening moment of his life.