The secrets to Foodco’s UK success
Jamaica Blue has just opened its first UK store-within-a-store with middle market fashion chain Next.
In this Q&A Michael Arbuckle, managing director of Foodco UK, reveals how the team has driven local growth.
10 questions on the secrets to Foodco’s UK success
1. Can you explain your strategy of piggy-backing on the Next stores?
Next is a £4bn fashion and homeware retail business throughout the UK and has always led the high street pack when it comes to online sales. While 50 per cent of its sales are now online 70 per cent of these are click and collect; 40 per cent of these customers will convert to an additional purchase when they come to the store.
Jamaica Blue was approached to replace Starbucks in-store, following customer feedback the showed demand for an innovative food concept.
Next’s objective was to provide a heightened customer experience within their stores with a contemporary café. Jamaica Blue’s premium coffee and onsite food preparation made it an ideal partner.
The Next concessions provide us with a new growth channel in those locations which meet our criteria.
The initial concession store is a company owned model but franchising options will be considered as the network grows.
2. What’s the overall growth plan for the brands in the UK?
Muffin Break opened in 2001 and at 66 stores is one of the leading franchised café brands in the UK. It has a controlled three year growth strategy of around 15 a year through to 2022.
These cafes are positioned differently to those in Australia and New Zealand, with a 160m2 footprint. We have focused on locations outside London in malls and high streets. Jamaica Blue opened in 2014 in Cambridge.
The ownership structure is a 50/50 mix of company and franchised stores. Jamaica Blue will roll out at around 10 new stores a year over the next three years. The brand is positioned as a premium café offer with significant points of difference in design and food offer from other UK brands.
3. Is your focus brand specific or Foodco?
We see our focus as brand specific and the brands will not compete against each other in most locations. It really depends on demographics and scale whether the two chains will sit comfortably together in the UK, given their brand values and personalities.
We are pretty strict in ensuring that each brand retain its own points of difference particularly as other coffee chains seem to merge their offers and concepts. Some Muffin Break franchisees do have the ability to own and manage both brands and we don’t see that as an issue.
4. How will the footprint grow – from brand new stores or conversions?
We’re not a fan of conversions at this point in the brand life cycle. Growth will come from new store development.
5. How evolved is the multi-unit franchisee model in the UK?
Multi-store ownership is a characteristic of our UK Muffin Break franchisee network (although it doesn’t suit everyone). An interesting point is that the majority of multi-store franchisees are British Asian business people. These guys are among the most focused small business people you can get. They have strong support from their wider family and their community enabling them to grow a portfolio of stores across the country.
6. What have you learned about consumer reaction to the brands?
When we started, our initial research indicated customers were more interested in store ambience and design than coffee or food quality or even customer service. Cafes merchandised help-yourself pre-packaged food sold with a use-by date.
Muffin Break introduced a fresh-baked food and coffee concept which has led to a sustained period of sales growth over the past six years.
Parts of our food concept have been duplicated by a couple of the major brands so we must be doing it right. Customers tell us they like our baked onsite fresh food offer with our savoury range now 25 per cent of our sales mix.
Jamaica Blue is establishing itself as a great café-vibe place which has great coffee and delicious food.
7. What changes have you made to adjust the model and why?
In Jamaica Blue we continued the contemporary store design seen in Australia and NZ. Our food while fundamentally the same is tailored to the consumer expectation at the specific sites. For example our hospital menu is different to our Cambridge CBD menu.
Jamaica Blue has flexibility in design and menu (we offer an all-day breakfast and wide brunch menu) to do that.
The UK Muffin Break store formats are larger than in Australia and we have fewer mall kiosk sites in the mix. We were able to broaden our menu to sell a higher priced savoury offering, meet an expanding breakfast demand and develop a strong cold drinks category.
As in Australia we continue to innovate and develop our savoury range. We have recently expanded our vegetarian and vegan offer to meet customers’ changing tastes.
8. How have the costs of doing business translated into the UK market?
Initial set up costs are significantly higher in the UK and retail legislation favours the landlords. So investment decisions have to be carefully made. Operationally the KPI of primary costs are better than in Australia with lower labour and food costs but with higher occupancy.
However the overall model is better than Australia if you can achieve occupancy of 18 per cent. Over the years we have fine-tuned the model to meet the UK conditions and failure to do so has seen many Australian businesses trip up here.
9. What has been the biggest surprise in bringing the two brands to the UK?
We launched in late 2001 and have invested heavily in the past 18 years. We are proud to be one of only a few Australian concepts that have succeeded overseas. You run the risk of losing a lot of money very quickly.
This is not a marketplace for an aggressive launch of a 100 store Australian brand. Yes there are 60 million people but the consumer habits here are different.
Shopping malls aren’t anchored by supermarkets. The day starts more slowly, council rates are high and solicitors are involved at every step. Typical lease terms are 10 years, there are several channels to market and there are restrictions on food outlets.
At the start no one wanted to know us and so it was very difficult to get opportunities above the more recognised and stable UK brands.
We had to have a point of difference which produced a return on revenue (ROR). That satisfied franchisee investment and grew the brand.
10. What are the challenges facing Foodco in the UK right now and into 2020?
We have to develop and broaden our menu offer to include plant based or vegan based choices (which we are doing) to remain relevant.
We continue to innovate in coffee and menu development to meet the demands of our customers.
The challengers are pretty much the same globally; operating in an extremely competitive marketplace, the ability to acquire investment capital, high operating costs and changing labour and food costs. And then there’s Brexit.
This will put pressure on our labour force and balance sheet. As lease costs come back a bit and vacancies appear, we see counter-cyclable opportunities for store growth and continued sales improvement which should see our business strengthen and flourish