Ken McMeikan Big Interview: Releasing the Brakes

A “slow motion car crash” was how one senior source described Brakes in 2012, as the foodservice giant’s parent company, Cucina Lux, laden with£1,627.4m debt, and interest payments alone totalling £64.7m, careened to a pre-tax loss of £93.7m [year ended 31 December 2010].

So industry analysts were surprised when Ken McMeikan left Greggs - after a four-year stint in which he defeated the government on the pasty tax and grew the share price by 50% - to take the helm at the debt-saddled foodservice giant in March last year. It was already 14 months into a new five-year business plan, but with cash & carries picking up custom due to their lower cost base, and Booker launching Chef Direct face on, it was an accident waiting to happen.

One year on, however, and newly released results for 2013 paint a happier picture. Total sales were up 4.2% to £3bn for the year ended 31 December 2013, and pre tax profits rose 117% to £126.2m. In the UK, sales were up 2.4% to £2bn, and pre tax operating profits increased 13% to £38.5m.

And with new £260m and€150m Euro bonds (“oversubscribed by three times”) secured this spring not due till 2018, and first quarter sales up 4% continuing the momentum , it’s proof, insists McMeikan, that the five-year plan is working.

While conceding Brakes has had its issues in the past, he also believes it has been “a little misunderstood,” and his own hesitation in speaking publicly about his plans hasn’t helped, McMeikan acknowledges.

Brakes is a powerhouse in delivered wholesale, he points out. No1 in the UK, no2 in France and Scandinavia, it works with 2,000 suppliers, sells a range of 50,000 products and employs over 10,000 people in four countries. And on the ecommerce side Brakes is not only growing 27% through independent customers alone, it is “already as big as Booker,” with £850m sales.

It’s also a major innovator. Expressing excitement at the leap into foodservice wholesale, Brakes puts him “at the sharp end” of retailer demand, he insists. “Our customers need to continually innovate, the pressure on foodservice is incredibly high, and a lot of the npd you see in the supermarkets has trickled down. So it’s quite exciting and dynamic from that perspective.” McMeikan has already increased the Brakes own-label range from 8,000 to 9,200 and has set a target to increase it to 10,000 this year.

And while Brakes is sometimes criticised for its high prices, he insists: “We were never necessarily the cheapest, but what customers pay for with Brakes is “value, quality, reliability and innovation.” The result is lots of long-term clients including Compass and a number of other corporate, independent and public sector contracts.

Not that McMeikan is complacent. Earlier this year the 7,500 UK staff spent between an hour and a day being updated in training sessions on the five-year plan, with “outperformance” on service as much as innovation as his mantra.

“Foodservice has been quite transactional in its relationship with customers,” he says. “But we’re a service industry - our customers want the most reliable foodservice operator so they can focus on their customers. So our number one priority is to build the business around our customer’s needs.”

The plan itself is not without its critics. With £250m to be invested by the end of 2016, comprising £125m into the existing business and £125m into infrastructure improvements, it’s making good progress, McMeikan explains, with three new multi-temperature depots built, two more in progress, and a new SAP IT system introduced. It’s already spent a large proportion of the budget, but though 90% of the benefits are yet to be realised this does not amount to slow progress. “The biggest challenge given the scale of change we were embarking upon was not to impact our customers in a negative way,” he says. “We made it clear at the start we weren’t going to put our customers at risk - we’re doing it carefully and well.”

“We’re slightly above the market in the UK and we’ve outperformed in France - and that doesn’t happen by chance,” McMeikan explains.

The latest venture to raise eyebrows is Brakes Professional Food Market. While the business plan was inherited (“It was a very bold five year plan”), the cash & carry outlet in Croydon is very much McMeikan’s brainchild, part of a multichannel strategy.

The Professional Food Market is not a traditional C&C - there is no tobacco - but he estimates the value from independent caterers and other sole traders that he’s targeting is a £4.5bn market.

“We knew customers from independents spent 20%-30% of spend at C&Cs or supermarkets - and Brakes wasn’t providing that. This is the right direction for foodservice, and we’re the first to do it. It also enables us to showcase our innovation better.”

The 25,000 sq ft outlet is certainly attractive, with fresh produce from Brakes business Pauleys - which has been growing 14% year-on-year - displayed prominently in the chilled section to the left of the entrance. An attractive display leads through to an M&J Seafood counter - where labels detail not only the species, but the source, and which of the 45 boats it uses caught it, - and from there to Prime Meats. The rest of the warehouse space is allocated to catering equipment (“a good growth area”), general lines including alcohol, and a section showcasing its top tier Wild Harvest offering, which supplies half the Michelin starred restaurants in the UK.

The market also features a staffed kitchen counter area showcasing new products, offering advice, and serving up free tea and coffee. But the car park is empty and the queues non-existent, making it look more like a showroom than a bustling market - manager Martin Sandler, who joined Brakes to head up the Food Market in February after 19 years with Costco (the last five running its Croydon branch), is quick to point out the peak times are between 7am-8.30am and 1pm-2pm.

With Costco, Booker and Wing Yip all practically within throwing distance of the Brakes outlet, industry sources were left scratching their heads when the Professional Food Market opened in March. But McMeikan argues that if it can work in Croydon, it can work anywhere. “We could have launched in a market with less competition, but if we succeed here, we know we have the scope to launch in other geographies.”

It’s certainly been a “learning experience” so far. While McMeikan doesn’t want to talk numbers, he’s “really pleased” with progress and says the food market is “hitting the targets we set out to hit - both from a customer numbers perspective, and the amount they’re spending with us”.

Prices in sync

One area that’s required tweaking is its prices. “We got it right on 75-80% of the range,” he says. But following a line by line review, prices were now in sync with the market and there had since been “virtually no issues raised.”

The learning process also challenged Brakes to ask more probing questions - “are we buying as well as we think we should be able to?” His conclusion is that the buying team is as strong as any in the market. But McMeikan is also exploring a new buyco concept. “We’ve made great progress with a number of other foodservice operators outside the markets we are in,” he explains, though he remains tight lipped on details.

Brakes is also focused on growing its existing speciality businesses, with Pauleys, Wild Harvest and M&J Supplies all doing well “from a top line sales perspective”. And it’s also won new business from the likes of Ikea, Garden Centre Group, Harry Ramsdens and Accor Hotels.

Seven years after Bain Capital snapped up the business, there are still question marks over an exit route. But whether McMeikan was drafted in to prepare the wholesaler for a sale is academic at this stage, he admits. “It’s a bit too early,” he believes. So where will the business be after the investment plan is complete in 2016? What’s the long-term plan?

“Bain have been very clear from the outset they weren’t necessarily buying the business to be the owner forever. I think from my perspective they have a number of options for an exit, but that’s not something we’re focused on at this point because there’s a lot more value to be created in seeing out the five-year plan and delivering on it.”

“July marks the half-way point in the five-year plan and a lot of the value to be gained from making this investment is still to be realised, so we’re very focused on what we’re doing in terms of change, rather than any form of exit,” he adds.