With a staggering 50% of all small UK businesses failing within the first couple of years of their inception, Produce Business UK speaks with Rob Ward, co-founder of Grocery Accelerator – a new start-up investment and business-mentoring service for early-stage food and drink entrepreneurs – to find out how the sector can avoid the pitfalls and build a profitable business
Business ‘accelerators’ are growing rapidly around the world. Why are they so important?
Rob Ward: Some 581,173 start-up companies were created in the UK in 2014 – the highest ever number of businesses, according to figures from StartUp Britain released in January. But of that total many will fail. BBC Dragons’ Den star, Theo Paphitis, claims over half of all small businesses fail in their first two years, which he considers to be “unacceptably high”.
A combination of poor cash-flow, sales frustrated by lack of access to trade buyers and limited industry understanding are typical contributory factors to a new business failing. To really get a new product out there you also need lots of money.
If you have a new drink for example you’re going up against the likes of Tropicana or Innocent. The danger is that you’ll end up selling your idea because you can’t get the listing or the big guys might under cut you anyway.
Accelerators, meanwhile, are proving to have a 92% success rate over two years, according to recent evidence from an O2 Telefonica report on the rise of accelerators in the UK.
Traditionally, new companies have applied for bank loans or re-mortgaged property. But the accelerator model – like Grocery Accelerator – offers funding in the form of a seed investment so a business won’t go bust.
At the same time, accelerators provide a business mentor to keep an eye on a company and make sure they do what they say they’ll do. They offer great advice, ensure the company does not waste its money and also spends money at the right time. They provide assistance so the company can make the right connections and quickly, hence the accelerator term. They meet the buyers they otherwise would never get to talk to, never mind have access to.
As a business accelerator, we offer an investor entrepreneurial model that is very powerful. That’s why the accelerator model has dramatically improved the odds of survival for these early-stage businesses.
What’s the secret to ensuring new brands and companies make it today?
RW: Any new brand or idea coming into the marketplace has to think very differently. You can’t come in as a small player with a new idea and think you can rub shoulders with the greats. You’ve got to come in more like an SAS elite soldier and enter round the back or through the roof rather than bashing down the front door. It’s about being very efficient and doing things that don’t cost anything. You have to know how to get free publicity for instance.
I used to own a farm shop business (Green Fields Farm Shop) and one of my shops was 1.3 miles from an Asda supermarket and 3.5 miles from a Waitrose store. You can imagine how tough it was having both ends of the retail spectrum close by. Yet I sold more strawberries because I was the strawberry guy and I was really good at it. I knew how to get on TV, in the print press etc. It’s not just about spending money to win business; it’s about spending it wisely.
Following the recession, UK consumers are making more considered purchasing choices. How can you encourage shoppers to buy new brands and/or products?
RW: As consumers we’re fundamentally emotionally driven so we’re still drawn to brands. If shoppers say you’re too expensive then you’ve failed as a seller to explain why you’re worth it. The farming sector is very guilty of falling into that price trap. At Grocery Accelerator, we’re trying to find ways around that to avoid getting into that situation.
You also have to target the 20% of your market that will spend substantially more. When I owned my farm shops I knew that the average spend was £10. Around 20% of my customers spent £40, while 80% spent £2.50. So, who do you sell to? You always have to focus on the higher spenders because there is more of a return on your investment and effort.
It’s the reason why sports cars and expensive watches exist. And it’s why Charlie Bigham can sell his shepherd’s pie for £7 while in the same supermarket there’ll be a shepherd’s pie selling for much less. It’s also because the product has his name on it and he garners trust in consumers.
But you’ve got to time that right too. Most products are created and then fragment. Some 40 years ago wine was either red or white, now it’s all about the different types of body. It’s the same with dairy and fresh produce. It’s one of the reasons why the ‘ripe and ready’ format came out for mangoes, kiwifruit and peaches. Those products are now more expensive because people are buying time.
What examples of successful new food products do you see on the market at the moment?
RW: Innovation is always about looking outside of where you are and then bringing the idea back in. Jamie Oliver has been very clever with his brands within grocery. He’s taken packet rice to the next level with a range of more elaborate mixes that are presented in his own style. So, there are opportunities for more brands in grocery. The meat sector is one example of where that’s already happening as we’re seeing more brands come in.
Living lettuce was a great innovation. It’s not for everyone but it’s different. Living herbs have also been clever in how they’ve evolved. Success with brands can also come down to how a product is presented – the way it comes with point-of-sale equipment, or the way it’s delivered. Redbridge (now part of Total Produce), for example, went into service (petrol) stations with its produce offer and that was a great innovation at the time.
What determines a successful business in today’s tough marketplace?
RW: There are two ends of the rainbow. You either have to find the most efficient way of selling a commodity for the lowest price or margin and be a cost leader. Or, you can be a differentiator and have an exclusive and innovative product that is exciting and interesting to buy. At either end there are pots of gold for the right businesses.
The reason why Waitrose is doing so well is because it has proven very able at selling everyday groceries affordably but also at selling exciting and interesting products. You only have to look at the other retailers that are struggling and see that they haven’t achieved that.
If retailers want to keep their stores open and maintain a profit they have to give people a reason to shop with them. If people only want to buy generic commodities and everyone sells them then you’ve lost the reason for people to shop with you.
Grocery Accelerator is providing five ambitious food and drink startups with £50,000 each in funding and support. What does the programme entail?
RW: We’ve built a support programme that will inform, educate and connect our chosen entrepreneurs with the right people in the trade. We’ve got £250,000 in funding to start with but we intend to increase the figure much higher.
Right now, we’re looking for five businesses to each offer £50,000 of seed equity funding (SEIS). The funding requires that the businesses are less than two years old. For instance, a grower that’s been around for 30 years can’t get the funding, so you might need to set up a new company within your business. This is step one – later in the year we will be offering other funds that don’t have this restriction.
It’s a six-month intensive programme of mentoring and business support from industry professionals that starts in April but if a business isn’t ready (due to technical issues for instance) then we’ll re-contract them.
Out of the £50,000, £12,000 goes towards paying for the programme. The businesses each get £34,000 to spend as they see fit which isn’t really going to change their lives much. This investment is really about creating a cost-free opportunity to prepare their business for acquiring sufficient investment to fund their working capital, or their premises or a marketing campaign.
How can the fresh fruit and vegetable industry get involved? Are you looking for a specific type of company and/or product?
RW: The selection process is not going to be prescriptive. Essentially, we’re looking for someone with an idea that has phenomenal potential, and usually that comes down to a few key things.
Firstly, the personality of the people who run the business. You don’t need to be a comedian, but you do need to have a combination of tenacity and a glowing personality. You have to be the type of person that’s honest, believable and trustworthy because you have to enthuse others and persuade buyers to work with you.
Secondly, we will consider how scalable the product idea is, although often there are limitations we can overcome. Thirdly, we will ask how innovative and different the product is. It has to be a new brand or idea coming into the marketplace. We need to see something amazing or maybe a new way of doing something that already exists.
Ultimately, it has to be a great, original idea and have the potential to deliver. Investors will only invest in a new company if they can see it turning into a £1-million business within a year and potentially a £10-million business in five years. So, it has to be something that will stand up as exciting and get shelf space. It’s not about just cutting a banana diagonally or offering a juice produced through high pressure processing (HPP). It needs to be genuinely new.
For me, I’d love to have someone on the programme from the fresh produce industry because it’s my background. I know the market and I can see opportunities to help.
Once you’ve chosen the five, how will you go about preparing those businesses so they can secure further investment for their future?
RW: We’ve put together an incredible programme which has never been done before in the food and drink industry, although some of the elements may have been covered. We are combining experts in all key business areas to help companies with their branding, technical know-how, legal governance, due diligence and financial planning and management.
It’s about establishing where the gaps are in a business and filling in the holes. Within that, we look at opportunities in the marketplace. We will also get the five companies to work together to build up a rapport and help each other.
We kick off with a business breakthrough by looking at the opportunities for each company and setting out the plan for the year. We both challenge and support the companies – sometimes you need a hug or a kick up the backside.
In late June, we’ll take one person from each company on a peer group international study tour to New York. We’ll visit the world’s largest specialty food trade show, the Summer Fancy Food Show, which showcases a whole range of grocery products from those sold in big supermarkets right down to the niche stores.
The show features a series of masterclasses and workshops and we’ll research the latest new food product ideas. Depending on suitability, we’ll also attempt to connect North American retail buyers with our businesses. North American consumers absolutely love British products – just look at the success of Tyrrells English Crisps, which appear in many North American delis.
After that, it’s back to the UK and back to reality. We’ll distil all the ideas and put the companies in front of a brand agency that’s among the top three in London. Usually, it costs £10,000 just to get a basic review from a group like this.
The companies will then get the help they need to be put in front of buyers. They’ll get access to trusted contacts in manufacturing, branding, logistics, technical and retail, including meeting supermarket buyers. We’ll decide on their pitch and rehearse it. We’ll also make sure the deal is right for them in terms of the margins, payment terms etc. so it’s not a waste of time. It’s the little things like these that companies may not know about.
Once they’ve got the business we’ll prepare them to access further funding through our investor boot camp. Then we introduce the companies to investors that could offer anything between £250,000 and £1 million. That’s the end of the programme. We operate as a sling shot in that we spin them around and fire them off for the next phase of their life.
What background and expertise do you have?
RW: Grocery Accelerator’s three directors are all very different but we have great synergy and we can call on specialist help. If we can’t answer a question we’ll know someone who can.
Paddy Willis is a co-founder of Plum Baby, the fastest-growing baby food brand in the 2000s. It went from £0 to a £10 million business in five years. He’s also the CEO of an entrepreneur network in London called Bathtub 2 Boardroom, which is a not-for-profit organisation that facilitates space (hot desks) for entrepreneurs in which to work. So, Paddy is constantly exposed to the world of entrepreneurism.
Simon Lacey has a hardcore background in fast moving consumer goods (FMCGs). He’s worked with many food and drinks brands, primarily products like Colgate and Pedigree. More recently Simon has worked with Lily’s Kitchen, a very exclusive pet food range. Simon is our account builder – he’s very good at winning business for clients and retaining that business.
My background is farming. I was a strawberry grower for one of the largest strawberry producers in the 1990s – Lubstree Park Farm, which my father started in the 1960s. My father was also a founding member of Kentish Garden, which later became Berry Gardens. We supplied a lot of strawberries to Marks & Spencer, Tesco, Waitrose, Asda, The Co-operative and other smaller retailers.
After that I set up a farm shop business, which gave me insight and exposure into the world of specialty food and provenance in terms of local or distinguished sources. Then I got back into the supermarket scene by creating a local sourcing hub for Asda in the Midlands that was very much about food brands. There I looked after over 200 lines for 28 supermarkets.
Later I started to do more and more advisory work, especially with producers in the farming sector. I sold my farm shop business in 2009 for a seven-figure sum which I couldn’t refuse since I started the business 10 years previously with just £5,000. I also spent some time in the US and got a farming scholarship, which opened my eyes to the potential for the future.
While I was in the US I saw a new business growth model that offers seed investment combined with a business ‘accelerator’. It was working in other industries, particularly on the US West Coast, with companies such as Airbnb and Dropbox.
Then I met Paddy at a networking dinner and our language connected. We decided to bring this business growth model over to the UK and apply it to the food and drink market. This 2015 programme follows a successful pilot comprising an intensive three-day business boot camp with eight startups in March 2014.