Simon Lewis, CEO at Partridge Muir & Warren Ltd considers how to cook up a good return in the food and drink sector…
It was a delight for PMW to be the headline sponsor for the Surrey Life Food and Drink Awards 2016 held recently at Foxhills Resort. You might be wondering what a wealth management company has to do with the food and drink sector but the fact is that this business sector is one of Britain’s most entrepreneurial and successful. It is important to appreciate how crucial wealth generation is to this nation because it has a very positive ripple effect. When businesses in the UK succeed, we all ultimately benefit as a result.
The Awards evening was a big success and it was lovely to witness the energy and passion of the people driving such businesses in Surrey, both large and small. One should never underestimate the blood, sweat and tears that must be shed in order to build a successful business; which is somewhat at odds with a government minister’s (Liam Fox) recent clumsy declaration that British business is fat, lazy and obsessed with playing golf.
You do not need to look hard in order to find some fantastic examples of entrepreneurial endeavour in the food and drink sector. One of my favourite success stories is Greggs. Greggs was founded by John Gregg in 1939 and started with him selling fresh eggs and yeast to families from his bicycle in Newcastle. Greggs plc is now the largest bakery chain in the UK and employs over 20,000 staff in 1,700 shops. In 2015 Greggs generated sales of over £800 million and over the last 20 years or so investors in Greggs ordinary shares have enjoyed a hearty total return of around 1,000%, roughly 4 times greater than achieved by the FTSE All Share index over the same period. Of course, past performance does not indicate future returns and you should take advice before making any investment to ensure its suitability.
Another standout business for me is Yeo Valley. This family-owned business started selling milk products from their farm gate and a touring Morris Minor van in 1972. The company now produces over 2,000 tonnes of yoghurt, butter, milk and ice cream each week and in doing so provides employment for 1,500 people and generates sales of over £300 million per annum. Although the company remains privately owned, the wealth generated by this enterprise has no doubt had a positive impact on its home county of Somerset.
The big increases in both leisure time and discretionary spending over recent decades have driven demand for cafes, pubs and restaurants. One of the outstanding growth stories in this sector is J.D Wetherspoon. The first pub opened in 1979 and there are now nearly a thousand established, employing 35,000 people and generating sales of £1.5 billion. I feel connected to this business, albeit remotely, because I once had a client who is very closely related to Tim Martin, the founder and CEO. He cashed out his portfolio with me in order to help fund the company’s expansion at a time when banks were not lending. He picked a winner because over the last 20 years the shares have returned more than twice as much as the FTSE All Share index.
Of course, you don’t need to be big to be beautiful and many of the eye catching businesses of today thrive because they offer something a little different from the norm. Over the last 40 years we have seen a trend for homogenisation as big businesses became bigger and the small ones were squeezed out because of a lack of pricing power. However, there is evidence that this trend is now going into reverse as increasingly affluent consumers are demanding better quality and greater individualisation.
Quality and individuality are the hallmarks of smaller businesses and it was inspiring to see so many such businesses at the Surrey Life awards. There was no shortage of energy and passion and it was great to see such a variety of approach; some clearly targeting existing niche markets, whilst others trying to create something completely different. It looks like quirky is becoming very cool.
One of the main problems for such businesses is a lack of funding. Banks are notoriously fickle when it comes to business lending; they want to give you money when you don’t need it and they want to take it back when you do. And there is no one to reason with once the computer at ‘head office’ says no. The advent of peer to peer lending looks like it may make a positive contribution to solving this problem but it is still early days for this approach and there are likely to be more flat pancakes than rising soufflés until the quality of due diligence improves. Nevertheless, it is certainly something we are looking closely at as a way for our clients to invest in small and vibrant businesses.
It was a privilege to congratulate all who were nominated for a Surrey Life Food and Drink Award. Let us celebrate our entrepreneurs and anyone who tries to make a go of it in the brutal world of business.