Since late September, shares in the 200-store Patisserie Valerie chain - a quaint throwback to the old Viennese cafés - have been suspended while investigations are underway (including a criminal one), after a £20m black hole was discovered in its finances.
But it’s time to move the conversation forward, says new CEO Steve Francis. With a £25m cash injection, including a £10m interest-free loan from chair Luke Johnson, the business “has been saved”.
“Yes, there was a brief hiatus, but it is well through that,” he insists. And there is “a candy shop of opportunities”.
“You’ve got a cherished brand. A totally loyal customer base. And it’s undermanaged. There are opportunities everywhere. That is why I am so excited to be in this role.”
Despite the ongoing investigations, Francis doesn’t care about the past. “My job is not to care. It’s to look at what we have here. And do it better.”
With the creditor ledger complete, and payments to suppliers up to date, he’s been visiting stores and bakeries up and down the country, making sure the business has “confidence, energy and belief”, and people are “not worried about what they read in the papers”.
“It’s unfortunate that the newsflow is not about the business and the products and its position in the high street and in people’s hearts. They make it synonymous with the outcome of the various investigations. And it’s not.”
Problems and opportunities
A member of the Institute for Turnaround, Francis is a fixer, best known in these pages for his success at Tulip. But he’s seen it all before. Not just potential fraud but other telltale signs of failing management, like the “sclerosis of communication”.
“My predecessor didn’t communicate a huge amount and didn’t visit the stores and bakeries that often. That has a huge impact.” Francis is spending at least “50% of my time” and “a lot of shoe leather” in stores listening to staff. “Big ears, small mouth”, he calls it - and he’s hugely reassured by feedback.
“The message is coming through loud and clear. This is a much-loved brand. It’s loved by employees and customers in a way that other high street businesses don’t have.”
As well as visiting stores, Francis has been busy building a new senior management team. Nick Perrin was brought in last week as “interim” CFO. It’s “a fast way of getting good people” and he “could go permanent”. He’s tasked with getting to grips with the books, while a small team within his department is creating reports and feeding information into the various investigations.
Francis has also created the new role of director of food production and supply for Jose Peralta, his ops man at Tulip, and a 20-year meat industry veteran, with a brief to modernise its back of store ops, bringing “the skills of own-label, high-speed, industrial fresh food production to a cottage industry”.
“He could run a business four times this size,” says Francis. “But when I walked him round the bakery his eyes lit up at the opportunity.”
It’s a legacy issue. Since Johnson acquired the chain in 2008, it’s added 20 stores a year, but all the energy and focus has been on growth, he says.
“It’s a 200-store business but the infrastructure is the same as when it had eight. They’ve not done a lot to modernise and get the benefits of scale. There are lots of opportunities to do what we do better.”
That extends to the front of house side, too. “Although I’m not a retailer, I’m a customer. You just walk through any store and you can find 10 things you can do quickly to make it better than it is now.”
Front of house has operated with an informal structure until now, with four regional directors (including one of the founders) managing the branches and sub-brands, including its Druckers Patisserie chain in the Midlands and the Baker & Spice bistros in London.
But Francis is looking to appoint a “big hitter” imminently from the quick service restaurant side.
“The business is crying out for a commercial director. That will be very much a high street operator, very practical, to bring a high-speed innovation mindset to what is a very traditional brand.”
Most of the range hasn’t changed in years. “There’s very little innovation, it’s at the margins, it’s ad hoc and it’s by local staff,” says Francis.
Also, with “helter skelter” growth, stores have opened “in places where perhaps they shouldn’t have”. And some stores have been affected by the high street malaise. In its Debenhams outlets, for example, store footfall is down 20%. So store rationalisation is “inevitable” as the chain “pauses for breath”.
But in many parts of the country the cafés are “rammed”, as punters - the demographic is older and mostly women - flock to its outlets.
And it’s not just cakes. It serves an all-day breakfast in many cafés; and up to 80% of sales come from savoury food.
One untapped opportunity is grab and go. “We don’t target that. It would help us in the quiet patch from 7.30am-9am.”
He also wants to mobilise its “old-fashioned” loyalty scheme. “It’s called the Cake Club. We have 500,000 members. But it’s not actively used. So we’re launching an app with Yoyo (Caffè Nero’s partner) in February.”
“If we target offers at the grab and go market, and provide a better savoury offer, there’s a huge amount of growth.”
New routes to market
Francis sees further ‘channel-led’ growth opportunities, including the exclusive Sainsbury’s deal - though “it needs to be reviewed like everything else”. And another new channel is online. Focused on its bespoke cakes, sales are “very small” but growing. With the app, and using Deliveroo and Just Eats, Francis believes online has “a great future. These initiatives are all underway but not getting a lot of attention.”
While the finance team is working to get a better handle on the accounts, Francis has been using “observational metrics” to build a better picture.
“You go to till receipts and you go to cash. And physical metrics, like making sure the mince pies come in the quantities you ordered, and that every row of cake slices is full all day long. It’s how a business should run anyway.”
With new draft October and November numbers, he’s confident the margin of error is now relatively low. And “the biggest source of uncertainty in the future is the same as everyone else: the high street’s performance. So far it hasn’t been a great Christmas. Is it cataclysmic? No. But performance is reflective of the high street.”
When it comes to announcing audited accounts, that’s some way off, however. For one, it hasn’t appointed a new auditor. “But we do know the business is trading sensibly. And we have good new advisers. So it’s not just our view.”
With shares suspended for a maximum of six months, Patisserie Valerie has until the end of March under AIM-listed company rules to relist.
Francis won’t commit to a precise date, but “there’s a lot of work to be done. It will be some months before definitive info will come out” is as far as he will go.
However, it’s already clear that the business, when it does relist, will not be at the same high valuation as before.
It was based on unusually high and stable gross margins and very high growth. “There were no obvious limitations to growth because the economics were so compelling. But it was a story that turned out to be based on financial data that wasn’t true.”
So it will be a different proposition. “It will be a lower-growth business, [with margins] more like the rest of the high street - but it will be a business run by an A-team.”
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