Butcher goes for leaner cuts

My client is a catering butchery business that was established in 1952 and has been run by the founder’s son for some 16 years.

The company had made a recent trade acquisition and sales had grown to £6M. Unfortunately, this was not a success and the business was losing money to the tune of £400K per annum. They asked me to carry out a Business Assessment which revealed six fundamental problems:

  1. A benchmarking exercise revealed gross profit to be 8% lower than their competition’s.
  2. The business received orders up until midnight and delivering them by their own transport the following morning. As delivery was integral to the product offer that cost should have formed part of the gross profit calculation. In reality, the company was actually making a gross loss.
  3. The bank was becoming concerned by the level of losses and was monitoring the business on a monthly basis. It wanted to know what was being done to restore profitability.
  4. There were quality and delivery issues and the company was losing customers as fast as they were bringing them in.
  5. The company believed that increased sales was its only way back to profitably.
  6. They had overestimated the market size and their ability to service it.

Although the market for meat is huge, their market was restricted to independent London restaurants and hotels. Unable to deliver nationwide, the company was excluded from the Groups. They had based their projections on a total market size of £15bn whereas in reality, they only had access to a market of £80 million.

  1. The salesmen’s commission was based on a percentage of sales which did not encourage them to maximise gross profit.
  2. They needed about a 10% market share just to break even.

The overall problem was therefore one of scale. They either needed to double the size of the business or to shrink it. At £6M turnover, they were in the dangerous middle zone of growth with all the overheads but neither the margin nor the sales.

The company no longer had the resources to go for £12M required from their P&L projections as the losses had burnt up the reserves. Further borrowings were required just to keep the business running and pay off debt.

The company asked me to help raise the necessary finance in order to restructure the business and put it back into profit. The resulting Business Plan arrived at the following requirements:

  1. To radically review the customer base and cut out those outside the London postal area. Some members of Buying Groups were also excluded as the prices they were willing to pay made their business uninteresting.
  2. To review the delivery routes so as to maximise the number of drops and minimise the fleet.
  3. To replace the general manager with an experienced butchery manager. Control of waste and overstocking is a critical factor. Profit or loss is made on the cutting room floor.
  4. To determine the number of redundancies that would be required in production, transport and admin support.
  5. To renegotiate the salesmen’s remuneration package so that their basic pay was reduced and targeted on gross profit after transport costs, as opposed to sales value. Salesmen had the opportunity to earn more but needed to be a little cuter than just selling on price and without reference to transport costs.
  6. On the marketing front, they needed to revamp the corporate identity, website and brochure.
  7. To start a “new customer welcome programme”. This required the salesmen be at the factory at 4:00 am to oversee the product specs with the butchers and then go out with the first deliveries to insure they were delivering what the customer wanted. On the basis that anyone can sell meat, the USP of the company was high levels of service.

The plan was presented to the bank and they agreed to support the company in order to carry it through. They also provided the additional finance needed to effect the changes. This was the result we had worked to achieve.

The plan was implemented over a period of 6 months with the following results:

  1. Sale dropped to £2.65M and then grew to £3M the following year
  2. Client retention was no longer an issue; the company had loyal long-term customers
  3. The gross margin percentage grew from 8% below the competition’s to 4% above. The margin after delivery costs rose by 18%.
  4. After the reorganisation, annual profits went from a loss of £400K to a profit of £145K .
  5. The Team and I had a party!

EPILOGUE

The best was yet to come and I would be delighted to reveal to the reader the final outcome should we meet. It was really, really fantastic!

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