There are quite a few virtual farm shops. There is surely none like Daylesford’s.

Instead of bolting a crude mail-order-based fulfilment system on to the back of a website, the upmarket farm shop and retail-cum-café operation is linking with Ocado, the most sophisticated grocery website fulfilment service in the world.

Daylesford has a lot in common with Ocado. Avowedly premium, lavish spenders, they have both, thus far, spectacularly failed to make a profit. At the last count, in 2008, Daylesford’s losses for the year were £10m, and in its first seven years of trading totalled £27m.

But Daylesford CEO Jamie Mitchell, brought in 20 months ago to turn the business round, could immediately see the potential of Ocado’s centrally fulfilled model when he entered into a partnership to stock a selection of Daylesford’s farm-produced items on Ocado last November.

The trial of new ready meals was “a winner”. Enough, in fact, to convince Mitchell that Daylesford, as a supermarket brand, could be a profitable version of Duchy Originals, in the right hands.

But Mitchell did some soul searching. “I realised that to service the supermarkets on this scale we would need to build a 30,000 sq ft factory. It didn’t feel like us. We like pots and pans. We make artisan products. It seemed a bit fake to take Daylesford down that road.”

Instead, Daylesford’s exclusive two-year deal will see 135 products stocked in Ocado. And he’s excited.

“Having a virtual farmshop inside Ocado not only allows us to integrate into the traditional weekly grocery shop; it provides a world-class customer interface and logistics platform. So it’s better all round for the customer.” And instead of compromising the Daylesford brand, Ocado will bring it to life, Mitchell insists. “We’re about farm to fork, and Ocado’s rich web platform can educate consumers and bring our brand to life in ways that an ordinary supermarket, even via its website, simply cannot.”

Trebling in size
Up 62% year-on-year, Mitchell expects the Ocado business to more than treble Daylesford’s “wholesale” business by 2014. But he knows it’s not enough. “I’ve always said this business needs to be three times its current size to be sustainable,” he says.

And having turned his back on supermarkets, Mitchell plans to pursue growth instead through retail expansion, revealing plans to open six to 10 new shops in London and the South West over “the next three to four years” to add to its three existing outlets, comprising the farm shop in Moreton-in-Marsh and two flagship retail-cum-café/restaurants in Pimlico and Notting Hill.

With the farm shop and Pimlico now making a profit, and total like-for-like sales up 15% this year, Mitchell believes he has already proved retail can work for Daylesford, and can see 30% more sales coming from the existing infrastructure. “I haven’t even thought about catering yet,” he says. With additional stores in London’s “villages” and affluent market towns around the Daylesford Cotswolds heartland, he expects to generate an extra £15m in sales, with smaller 1,000-3,000 sq ft stores based around retail, while the café scales up depending on the size.

In developing the retail model, Mitchell has paid close attention to delis and independents, and believes he can do it better.

“The offer tends to be a bit ­bitty,” he says. “We’re a top-up shop for affluent customers. So we’ve got to have convenience, options for lunch and supper, larder essentials, fruit and veg, daily bread and milk and a few really great products to tempt you.”

After cutting costs drastically, Mitchell says the 2010 accounts will show losses reduced to £3.5m; and he anticipates them falling to £1m on an EBITDA basis in 2011. The next two years, he says, are make or break.

“It’s going to take a little longer to get to break even than I originally hoped, but if we aren’t profitable in 2013 I will hang my head in shame.”

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