Latest / The Business Case - with Mark Wharrier and Phil Clark / S2 - Episode 12: The Business Case: Interview with Lee Tappenden, CEO of ProCook

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S2 - Episode 12: The Business Case: Interview with Lee Tappenden, CEO of ProCook · The Business Case - with Mark Wharrier and Phil Clark

0:17
SPEAKER_02: Welcome to the business case in partnership with the leading investor presentation hub Engage Investor.
0:23
SPEAKER_02: This is the podcast where we dive deep into the stories behind the UK's leading companies.
0:28
SPEAKER_02: I'm Mark Warrior.
0:30
SPEAKER_00: And I'm Phil Clark.
0:31
SPEAKER_00: And in each episode, we'll be sitting down with top business leaders to uncover their career journeys, the challenges they faced, and the insights that have shaped their success.
0:43
SPEAKER_02: We have spent our careers analysing and investing in UK companies, meeting managements to understand the business case.
0:50
SPEAKER_02: And now we want to share those insights with you.
0:54
SPEAKER_02: We will hear about the companies our guests lead and how they are positioned for the future.
0:59
SPEAKER_00: But we also want to find out what makes these business leaders tick, the highs and the lows that they have experienced, and the lessons of management that might apply to your life.
1:11
SPEAKER_02: Please remember this podcast is not investment advice and is for informational and educational purposes only.
1:18
SPEAKER_00: Today's uh podcast guest on the business case is Lee Tappenden, who is the CEO of ProCook.
1:24
SPEAKER_00: This is a really interesting conversation.
1:26
SPEAKER_00: We haven't had too many retailers on the podcast so far, and uh Lee's really in charge of a business that's seeing fantastic growth.
1:35
SPEAKER_00: We talk about a lot of growth opportunities for this business, um profit margin improvement, um, a lot to like here.
1:42
SPEAKER_00: I think it's a really interesting story.
1:44
SPEAKER_00: The business is performing well and executing well, and uh hope you enjoy the conversation.
1:56
SPEAKER_00: Today we're joined by Lee Tapenden, the CEO of ProCook, the UK's leading direct-to-consumer specialist kitchenware brand operating in a highly fragmented market.
2:07
SPEAKER_00: Procook has an interesting heritage.
2:10
SPEAKER_00: It's a founder-led business that started selling cookware through direct mail before developing into an omnichannel retailer with a rapidly expanding store estate and e-commerce operation.
2:21
SPEAKER_00: Lee joined the business as a CEO in 2023 and has overseen a significant acceleration in the business.
2:27
SPEAKER_00: In the latest financial year, revenue grew over 20% to a record£85.5 million, with strong growth both online and in stores.
2:37
SPEAKER_00: But the ambition is bigger.
2:39
SPEAKER_00: Procook wants to become the UK's number one kitchenware destination and has set some medium-term targets of 100 stores,£100 million of revenue, and a 10% operating margin.
2:51
SPEAKER_00: We'll explore what's driving that growth, the economics of opening stores, how ProCook competes against much larger retailers, and ultimately how big this business could become.
3:02
SPEAKER_00: Lee, welcome to the Business Case Podcast.
3:04
SPEAKER_01: Thank you for having me, Phil.
3:06
SPEAKER_00: Great.
3:06
SPEAKER_00: Well, to kick us all off, um, for listeners that aren't one of your customers, which clearly they'll be changing that after this conversation uh at ProCook, what's the proposition and why does the UK need a specialist kitchenware retailer?
3:20
SPEAKER_01: Yep, big question.
3:21
SPEAKER_01: So um just to start, ProCook is pretty unique in that all of our products are 100% our own brand.
3:27
SPEAKER_01: Um that's a real point of difference, I think, to call out first of all.
3:30
SPEAKER_01: Uh secondly, we direct source all of our product directly from the factories, so there is no sort of additional cost in the middle.
3:37
SPEAKER_01: Um, what does that enable us to do?
3:39
SPEAKER_01: Um, generate our own products, design our own products, um, manage the supply chain, and that results in obviously unique product ranges, but also a very healthy margin position, which means we can offer what we believe is incredible value compared to most of the brands out there.
3:56
SPEAKER_01: Um, secondly, the proposition is multi-channel, it's omnichannel.
4:01
SPEAKER_01: So just shy of 40% of our sales are online, and we'll probably touch upon that later on in terms of the store mix and how that's evolved over the last two or three years.
4:10
SPEAKER_01: But about 40% online uh and the rest in stores.
4:13
SPEAKER_01: So we manage everything, both DTC and stores.
4:16
SPEAKER_01: Yep.
4:17
SPEAKER_02: Great.
4:17
SPEAKER_02: Um, Lee, you've spent much of your career in retail and consumer businesses.
4:22
SPEAKER_02: Um, you know, before we dive into the the company, you just talk about what what experiences have shaped how you think about retail, building brands, serving the customer.
4:30
SPEAKER_01: Yeah, so I I spent nearly 25 years with Walmart.
4:33
SPEAKER_01: Um, starting, I I hate to say nearly 30 years ago, Asda uh in the 90s.
4:39
SPEAKER_01: Asda was then bought by Walmart in 99.
4:41
SPEAKER_01: So I then had a long journey from 2001, living outside of the UK for 20 years, um, based in the US, for a while in Japan, and then the last 10 years in Canada, uh, running the Canadian business for Walmart.
4:54
SPEAKER_01: So much bigger, a different business.
4:57
SPEAKER_01: It was big box, it was discount, but the fundamentals of retail are always there.
5:01
SPEAKER_01: Um, it's all about that detail.
5:03
SPEAKER_01: I guess the differentiation at ProCOC is um we really want to be seen as the number one for service and engagement face-to-face, uh, and that follow-up online, which is slightly different, but the fundamentals of retail are exactly the same.
5:17
SPEAKER_02: Yeah, Asda during that time in the sort of early mid-90s had an amazing culture, didn't it, in terms of um energy and serving the customer?
5:24
SPEAKER_01: Yeah, it did, as many many will remember.
5:26
SPEAKER_01: It was Archie Norman as chairman and Leighton, a CEO, big turnaround from close to bankruptcy in the early 90s.
5:33
SPEAKER_01: It was a very interesting place to work in the 90s.
5:36
SPEAKER_01: Um, learnt a lot, and a lot of people from ASDA went on to do various different things with Walmart International.
5:42
SPEAKER_02: Yeah, absolutely.
5:43
SPEAKER_02: So uh 2023, what first attracted you to ProCoke in terms of joining?
5:48
SPEAKER_01: Yeah, I mean, I first got the call and then visited stores.
5:51
SPEAKER_01: Um, I thought uh, first of all, I wasn't aware of the brand.
5:54
SPEAKER_01: That was the first thing to say.
5:56
SPEAKER_01: Um, I went to a store and I thought I wasn't aware of the brand because I've been outside the UK for so many years.
6:02
SPEAKER_01: Um, loved the product in the stores, that's the first thing to say.
6:06
SPEAKER_01: So, from a quality and a value perspective, I thought, wow, this is really unique.
6:11
SPEAKER_01: Um, that was the first thing.
6:13
SPEAKER_01: Spoke to a few friends and family, same sort of response, low recognition of where the brand was today.
6:19
SPEAKER_01: Um, I then met the founder, Daniel O'Neill, um, the typical sort of first meet and greet, followed up what was meant to be a one-hour in-store, turned into eight hours together, going to multiple stores, competition, and Daniel and I had a good chemistry, and and from that, obviously, we are now here.
6:37
SPEAKER_02: So, fundamentally strong business, as you say, you know, the founder heritage.
6:41
SPEAKER_02: Um, but in the early days, what did what do you think needed to change about the business?
6:45
SPEAKER_01: Yeah, well, the foundations are very uh strong around the product and the sourcing.
6:49
SPEAKER_01: That's the first thing.
6:50
SPEAKER_01: That's really, really hard to replicate.
6:52
SPEAKER_01: It's 20 years in the building to do that, those relationships with the manufacturers direct.
6:57
SPEAKER_01: So that's the first thing.
6:58
SPEAKER_01: So it's very hard to replicate from from scratch.
7:01
SPEAKER_01: Um, I also recognize that there was a lot more opportunity in the stores in terms of the way that products were merchandised, how we how we bought the product to market, and how we brought the brand to market.
7:12
SPEAKER_01: So, and we can talk a lot about um what we're doing at the moment with social media and and paid media, but um fundamentally the product was there, but there was a lot more that could be done, I thought, around the e-commerce site at the time and the stores.
7:24
SPEAKER_01: And we've we've developed a new store concept.
7:27
SPEAKER_01: Um, 12 to 13 of our stores are now in this current concept and it's working very well.
7:31
SPEAKER_01: So a lot of change on the store environment as well.
7:34
SPEAKER_02: Uh, have you changed your mind about anything from those first um perceptions of the business as you've kind of got into the role?
7:40
SPEAKER_01: Uh I would probably say I'm more energized and excited about the opportunity.
7:43
SPEAKER_01: Um in terms of competition, there are very this big white space.
7:48
SPEAKER_01: There is really no other Kitchenware specialist retailer that is combined indeed to see an in-store environment with that customer service element as well.
7:56
SPEAKER_01: So it's a massive point of difference that we're doubling down on, and we're we're starting to see the benefits of that over the last 18 months.
8:03
SPEAKER_00: Great.
8:03
SPEAKER_00: Well, let's um let's dive into the the business model a little bit, Lee.
8:08
SPEAKER_00: Um, I think as as you said in your opening remarks, you know, the the ProCook model is is an unusually integrated model.
8:15
SPEAKER_00: There's not a lot of high street retailers that most of our listeners would would shop has that model.
8:20
SPEAKER_00: So you're you know, your own brand, you're directly sourced, direct to consumer, which is allowing you know to target a high quality product at attractive prices.
8:28
SPEAKER_00: Um I'm not sure if you'd say everyday low price, but I it feels like that's kind of to a degree.
8:34
SPEAKER_01: Um one of the things we are in the midst of changing is becoming less promotional.
8:39
SPEAKER_01: Right.
8:39
SPEAKER_01: So the business was highly promotional before.
8:42
SPEAKER_01: So that is a really interesting point you touch on.
8:44
SPEAKER_01: So yes, we're getting less promotional.
8:46
SPEAKER_01: There's there are still promotions in our business, but um, you are able to find unbelievable value every day in our stores because of the sourcing model we talked about.
8:55
SPEAKER_00: But when we talk about the stores, I definitely want to talk about the full price outlet dynamics because I think that's always quite interesting.
9:01
SPEAKER_00: But but the kitchenware as a category, it feels it's highly competitive, but as you say, there's not an obvious place, or there's not obvious other specialists.
9:10
SPEAKER_00: So, what what is it that means that you've got that right to win and that and to be that specialist?
9:16
SPEAKER_00: What why isn't it that the John Lewis or the multi-brand retailers are kind of ultimate winners here?
9:22
SPEAKER_01: I think it's twofold.
9:23
SPEAKER_01: It is first and foremost, it's what we're doubling down on at the moment is product knowledge and a service model in our stores.
9:31
SPEAKER_01: Um, we operate quite small stores, typically 1,500 to 2,500 square feet.
9:36
SPEAKER_01: Colleagues are readily available.
9:38
SPEAKER_01: We spent a lot of time in the last two years training and retraining around product knowledge.
9:43
SPEAKER_01: So we're very confident in product knowledge.
9:45
SPEAKER_01: Uh, we're getting better at the service and selling model, but there's still work to be done there.
9:48
SPEAKER_01: So that's a big point of difference, especially compared to a big box retailer.
9:53
SPEAKER_01: And the other thing is because we own the whole design, what we're seeing now is the ranges that we're developing hang together, and you're able to layer different products together to create a different experience in your dining table, for example, that wasn't there before.
10:08
SPEAKER_01: And I think because we've got a very tight buying group, we're a lean organization, basically, all the decisions are coming to a very small number of people to make it a very cohesive range that hangs together, which you know it's hard to do in a bigger organization.
10:21
SPEAKER_00: Yeah, I mean, range construction is definitely a challenge.
10:24
SPEAKER_00: And as you say, if you've got too many cooks sort of in the mix there, uh to speak, you could you can definitely get it wrong.
10:30
SPEAKER_00: And in terms of just trying to unpick the the relative importance of those different components of the proposition, you know, product is key, price is key, sourcing and service.
10:41
SPEAKER_00: If you had to kind of rank them or think about anything else that you'd put into that, how what is it that's really the kind of the key secret source?
10:49
SPEAKER_01: I would say it's it's not a single ingredient, it's all of those you mentioned.
10:52
SPEAKER_01: Yeah, uh, combined with the fact, like I said earlier, um, we have a really big focus both on stores and e-commerce.
10:59
SPEAKER_01: So I think the omni-channel approach is um very important.
11:03
SPEAKER_01: Um, anyone can go to our stores today, touch and feel a product engaged, they can demo knives, which you can't do anywhere else, which is really important, and we can have that product delivered to your home next day free of charge.
11:14
SPEAKER_01: So there's there's a real sort of frictionless uh component there, and that makes a big difference.
11:20
SPEAKER_01: But also, um I would say the actual selling model again and the service, I'll come back to that, is you know, and that value proposition against the brands is market in some you know it's 30 to 50 percent plus in some in some categories.
11:36
SPEAKER_01: So, you know, I I think again it will take years and years and years to replicate the sourcing model we have.
11:43
SPEAKER_01: So it's all of those together make this quite a unique formula.
11:46
SPEAKER_00: And just thinking about range construction and product, I mean how how you big I guess one of the advan I would assume one of the advantages of the direct model is that you're quite nimble and quite agile.
11:57
SPEAKER_00: How how important is fashion and trend in terms of your product offering?
12:01
SPEAKER_00: Like is newness a key driver of of set footfall and sales growth?
12:06
SPEAKER_01: Increasingly more so.
12:07
SPEAKER_01: Um, I would say when I first arrived, we had limited to no seasonal product.
12:12
SPEAKER_01: And it was very much it was an evergreen all-year-round range.
12:16
SPEAKER_01: Right.
12:17
SPEAKER_01: Great product, great value, but evergreen.
12:19
SPEAKER_01: Um, we saw the first sort of inroads into seasonality last spring, summer, and Christmas.
12:25
SPEAKER_01: This year we've doubled down again, and summer's been great in terms of the product sell-through.
12:30
SPEAKER_01: Um, interesting, we just had our conference where the store managers come in the last two days, and we've just gone through a whole Christmas experience, uh, showing casing Christmas.
12:38
SPEAKER_01: And I think it's a real um step change for us.
12:43
SPEAKER_01: Um, and the categories that we had heritage and legacy in, cookware and knives, are bought quite infrequently.
12:49
SPEAKER_01: Um, we have long guarantees, 10-year, 25-year guarantees.
12:53
SPEAKER_01: Whereas tableware, glassware, linens it's fashion, it's colour, and we've seen a lot more fashion and colour come through everything from cast iron to all the products I just talked about.
13:04
SPEAKER_01: Um, that increases frequency of shop.
13:07
SPEAKER_01: Um people change them out every year.
13:09
SPEAKER_01: And you know, there's another big trend around you know, I'm seeing that people are moving house less frequently, so it's like improve your home versus move, the cost of moving, the uncertainty with interest rates, housing markets tough.
13:24
SPEAKER_01: I hear so often customers come into our stores and say, I've renovated my whole kitchen, it's now a green or a blue, which are the two colours, and and they want something on their in their kitchen to refresh that and say, I think that's where we're playing a really important role at the moment with colour.
13:38
SPEAKER_00: Yeah, well, I I guess they the the The pros of what you've just described is that you're driving footfall, you're driving traffic, you're driving excitement in the stores.
13:47
SPEAKER_00: That the risk is that you end up with making seasonal bets that don't quite come off, and therefore you're in that discount environment.
13:53
SPEAKER_00: And as you were saying in your earlier comments, you're trying to move away from being a less promotional business and more full price.
13:59
SPEAKER_00: So, how does that interplay work?
14:01
SPEAKER_01: The art of buying, I guess.
14:03
SPEAKER_01: Um I mean, we've like I say, we've got a really tight buying team.
14:07
SPEAKER_01: Um, you have to make some bets on seasonal products, not everything works.
14:11
SPEAKER_01: Um, we've got a very clear internal process of marking down and cleaning as we go and not leaving seasonal product.
14:18
SPEAKER_01: I mean, it's just basic to your point earlier, retail discipline.
14:21
SPEAKER_01: Yeah, you have to do that.
14:22
SPEAKER_01: Um, but I think the upside of the sales from seasonality and the fact that we want you know, customers to frequent our stores more frequently on per year, seasonality will do that.
14:34
SPEAKER_01: So, and as we're buying, the team are very, very um accomplished at making sure they build in enough margin for the markdowns.
14:41
SPEAKER_01: It's it's very you know, it's basic retail.
14:43
SPEAKER_01: Yeah, you price it in.
14:44
SPEAKER_00: I mean, one of my old one of my old bosses always said that you make your money on the buying, not the selling.
14:48
SPEAKER_00: So I think you've just replicated you're confirming that.
14:52
SPEAKER_00: And just thinking about that direct source model and and the own brand proposition that you have clearly gives you a robust gross margin and at the same time you can offer value to your customers.
15:03
SPEAKER_00: What is it that you think has prevented either some of your branded competition or others sort of replicating that model and and sort of eroding that that competitive advantage?
15:14
SPEAKER_01: Yeah, I mean you touched on something that is a very pleasant surprise when I started.
15:17
SPEAKER_01: Our margin is around 68% gross margin, which compared to my previous slides, is you know, is unbelievable.
15:23
SPEAKER_01: It is unbelievable.
15:24
SPEAKER_01: Um, but I I think you know replicating the sourcing model is is as I said already, it's not an overnight um job, it's very, very hard to do.
15:33
SPEAKER_01: Um, and it takes a lot of discipline around the range planning as well.
15:37
SPEAKER_01: So I think the seasonality we talked about will just add into that mix.
15:43
SPEAKER_01: Um and I I don't see having, and we've seen this already with seasons behind us now, we're still able to maintain that margin level.
15:50
SPEAKER_01: Um, and we expect to do that this year as well.
15:52
SPEAKER_00: Yeah.
15:53
SPEAKER_00: So you get the margin benefit because you I guess you probably price up a little bit and then and then you get the benefit of the volume increase.
15:59
SPEAKER_01: Yeah, I mean some of the brands have huge marketing budgets and equity built into that pricing, yeah, having to pay a third-party retailer to wholesale the product.
16:07
SPEAKER_01: So, you know, there's two different levels of cost that aren't in our margin because we are literally from factory to store or factory to our own e-commerce site.
16:18
SPEAKER_01: Yeah.
16:19
SPEAKER_02: Well, let's um talk about the store model uh a little bit more.
16:22
SPEAKER_02: Because you have um 79 stores at the moment, target to get to 100, and you're accelerating the openings, which I mean it's pretty unusual in itself in terms of UK retail finding a uh company that's accelerating store openings.
16:35
SPEAKER_02: And you talked about a new format that you you've been trialing successfully.
16:39
SPEAKER_02: So what what does the ideal ProCook location look like?
16:43
SPEAKER_02: And you know, talk us through um the new format and how that differs from the previous one.
16:48
SPEAKER_01: I I think this is one of the most exciting opportunities is that or two things.
16:53
SPEAKER_01: I'll talk about the new design concept in a minute, but um we've opened recently in the last two years, we've opened about 25 stores, and they're in a mixture between really high traffic malls like Birmingham Boring, Manchester Arndale, super high traffic, 45 million.
17:08
SPEAKER_01: Um equally we've opened stores in Chichester High Street and Guildford High Street.
17:13
SPEAKER_01: Both models work, both models make money based on the different rental structures and everything else.
17:18
SPEAKER_01: So this is where I see there's an opportunity to a lot of fill-in on small stores.
17:23
SPEAKER_01: Um another proof point would be we've had two stores we've recently relocated.
17:28
SPEAKER_01: Again, small towns, high streets are important to us.
17:32
SPEAKER_01: So Harrogate and Lewis, we had two stores that have been there over 15 years.
17:37
SPEAKER_01: They were very tired, they needed some work and maintenance.
17:40
SPEAKER_01: So instead of doing that, we relocated both around 100 meters away with a new package, new format.
17:47
SPEAKER_01: Both stores are running you know huge light-for-light growth, pure location, new design package.
17:54
SPEAKER_01: And I think you know the fact we can exist in high streets and shopping malls is quite unique.
18:00
SPEAKER_01: The um design package that we again example of being a lean small group uh from an idea in February last year with one architect, a senior leadership team.
18:12
SPEAKER_01: We sat down and we developed different ideas, a new concept, iterated, iterated, pulled it together, sourced the new concept, and delivered it from China and opened our first store in September.
18:24
SPEAKER_01: And since then we've opened 12 more.
18:26
SPEAKER_01: And it's really rapid, and and honestly, we have not had to change anything from the first store, minor, minor tweaks.
18:33
SPEAKER_01: We're really happy with the new package, and what the package does, it makes the product the hero.
18:39
SPEAKER_01: It's dumbed down all the noise, it's more premium, softer lighting.
18:44
SPEAKER_01: Um, I always thought our initial stores, when I went to them, felt like they were designed by a man, and they were, and for most of our customers are female, and the stores are much softer now and more premium fill.
18:58
SPEAKER_02: Well, they're they have they look a lot less cluttered than perhaps they were a few years ago.
19:02
SPEAKER_01: Yeah, I mean that we've lowered all the fixtures, sight lines are completely improved.
19:06
SPEAKER_01: Um, and again, these are small stores, you should be able to navigate around very easily.
19:10
SPEAKER_01: But um, and this is a classic example of we have a bit of a journey to do on some assortment rationalization in some categories, you know.
19:18
SPEAKER_01: Less is more often.
19:20
SPEAKER_01: And as we go about that journey, that gives us the opportunity to free up more space to expand some other categories where we're not as strong.
19:27
SPEAKER_01: Yeah.
19:28
SPEAKER_01: So again, future opportunities for range.
19:30
SPEAKER_02: Okay.
19:30
SPEAKER_02: And in terms of that rollout program, you know, broadly, what does the payback look like in terms of new stores?
19:36
SPEAKER_01: Yeah, it's um this is the other element, it's relatively quick in terms of payback and quick to fit out the stores.
19:42
SPEAKER_01: Uh, if we get a store location unit that's in good shape, it's typically four to six weeks to fit out, which is very quick.
19:50
SPEAKER_01: Uh 250,000 to 300,000, depending on the extent of the work.
19:54
SPEAKER_01: Um, we would target a payback of around two to two and a half years.
19:58
SPEAKER_01: So, you know, we're in this, you know, a lot of stores open in a short period of time put some pressure, but as you've probably seen from the annual results, you know, we're we're self-funding that ourselves through cash generation.
20:08
SPEAKER_02: Yeah.
20:09
SPEAKER_02: And as that rollout continues, you know, you've talked about 100 stores, but do you think that is that a ceiling?
20:15
SPEAKER_02: As the brand gets more resonance and no, it's it's not.
20:18
SPEAKER_01: I mean, we set out the 100, 110, 100 stores, 100 million revenue and 10% operating margin in June of 24.
20:25
SPEAKER_01: And we said it was medium term, it was appropriately left open.
20:28
SPEAKER_01: Um, and we're doing a scoping exercise at the moment.
20:31
SPEAKER_01: You know, fundamentally we believe it's north of 120, 130.
20:35
SPEAKER_01: Um, in in in short-term lines, line of sight, we can see that number coming through in the UK.
20:40
SPEAKER_01: And so, realistically what proportion of the population would that cover in terms of uh catchment areas?
20:45
SPEAKER_01: I think if we get to about 100 stores, we would estimate around 50% within 20 to 30 minute drive time, which again tells you the opportunity of why wouldn't you go to 120, 130?
20:56
SPEAKER_01: Um, that's that's the obvious point.
20:58
SPEAKER_01: Um the other thing about the store expansion is we can directly track via postcodes um the Halo effect on e-commerce.
21:08
SPEAKER_01: And we see around six to seven percent sales increase in e-commerce in those postcodes within that 10 to 20 minute drive time.
21:15
SPEAKER_01: So there's it is genuinely you know one plus one equals three.
21:19
SPEAKER_01: Um, and we don't factor the e-commerce upside into any of the business cases either.
21:24
SPEAKER_01: So that two and a half, two to two and a half year payback is purely in the store.
21:29
SPEAKER_01: Yeah.
21:30
SPEAKER_02: Well, it's one of those products I would have thought outside of clothing and apparel, you know that's probably the next category where you really need to see and feel the product, right?
21:38
SPEAKER_02: If you're going to be using this every day in your house and you know, just ordering something online and then sending a bag of you something bulky that you you know.
21:45
SPEAKER_01: I'm 100%.
21:46
SPEAKER_01: I mean it's a very considered purchase a knife, knife range or cookware.
21:52
SPEAKER_01: I mean, they will last a long time.
21:54
SPEAKER_01: You want them to be the best quality.
21:56
SPEAKER_01: And I think the point I mentioned earlier about you can demo our knives in our Stores is really important.
22:02
SPEAKER_01: Our store colleagues are trained obviously on health and safety, but also on the product attributes.
22:06
SPEAKER_01: They walk someone through what do you use your knife for?
22:09
SPEAKER_01: What do you typically cook?
22:10
SPEAKER_01: Not just there's not an upsell model, it's just about what is right for that customer.
22:15
SPEAKER_01: So it feels very engaging.
22:16
SPEAKER_01: And you know, majority of time, if someone actually demos a knife, they will be purchasing not just one but often multiple knives.
22:24
SPEAKER_00: And do you think, I mean, is that I mean, given thinking about the interplay between online and store, is that the primary driver you think for people to come into the store environment is that is that um trialing of product, demo product and and really tapping into that knowledge base of your of your colleagues in the stores?
22:42
SPEAKER_01: I think that's one.
22:43
SPEAKER_01: I think the second thing is we're still experiencing a lot of people who are finding us for the first time.
22:48
SPEAKER_01: They're coming in out of interest from the street, they're seeing the window, what is this, what is this brand?
22:53
SPEAKER_01: Um, and we still ask that question, which I you know is I don't view that as a negative, I view that as upside.
22:59
SPEAKER_01: And then if they have a great customer engagement and experience, and then the ability again to then go online and shop and have it delivered at home, even from the store at home.
23:07
SPEAKER_01: Um, you know, it is again a point of difference, but you do want to touch and feel a knife or cook well.
23:13
SPEAKER_01: I fundamentally do think you you want to do that as a customer.
23:17
SPEAKER_00: Yeah.
23:17
SPEAKER_00: Well, let's let's sort of drill into that a little bit more, then Lee, in terms of sort of product brand, brand awareness, the market share opportunity.
23:23
SPEAKER_00: I mean, the strategic opportunity looks looks really significant.
23:27
SPEAKER_00: You know, you you've your UK leading player already.
23:31
SPEAKER_00: I think I think you've estimated or the company's estimated a market size of about four billion annually in terms of cookware, um, kitchenware sales.
23:40
SPEAKER_00: You've got market share of 2%.
23:43
SPEAKER_00: Yeah.
23:43
SPEAKER_00: Uh there's a long way to go.
23:45
SPEAKER_00: Um you know what what who is it you're taking share from?
23:49
SPEAKER_00: How do you think about that runway of that?
23:51
SPEAKER_00: You know, what's this what what's a what's a sensible market share number to be going for?
23:56
SPEAKER_01: Sure.
23:56
SPEAKER_01: Well, you're right on the size of the market.
23:58
SPEAKER_01: If you include uh small domestic appliances, it's not five billion.
24:02
SPEAKER_01: Right.
24:02
SPEAKER_01: So we but you're right.
24:03
SPEAKER_01: I mean, it's and we've got about two, two and a half percent market share.
24:06
SPEAKER_01: So but the other thing that's interesting is the market is extremely fragmented.
24:10
SPEAKER_01: Yeah, there's only about five players with up to five percent, and it's a massive tail.
24:14
SPEAKER_01: This is the opportunity to double market share from two and a half to five, would seem quite achievable as a specialist with all the things I've talked about.
24:22
SPEAKER_01: Um, and and we're still you know starting to go on a journey of more product development.
24:27
SPEAKER_01: That's that's more, but there's so much more coming in the pipeline.
24:30
SPEAKER_01: Um, but I think in just I can't really say where we're still because it's so fragmented.
24:34
SPEAKER_00: Yeah, it's m mum and pops, it's independent, it's independent.
24:37
SPEAKER_00: It's everywhere.
24:38
SPEAKER_01: I mean, there are you know, there's clearly one other retailer that would be considered more direct competition with us.
24:44
SPEAKER_01: Um, but I think one thing we're very clear on is we're not going to deviate from being a hundred percent procure product, it's part of our proposition.
24:52
SPEAKER_01: Yeah.
24:53
SPEAKER_01: Secondly, we want to remain a kitchenware specialist and not try and get distracted by other trend or fad items, which can be dangerous.
25:01
SPEAKER_01: So we're keeping very you know feet grounded around being the best we can in these categories because to your point, it's a£5 billion market in the UK alone.
25:12
SPEAKER_00: Yeah, yeah.
25:12
SPEAKER_00: I mean, uh I'm not always the best at maths, but if I think about doubling your market share from two and a half to five, that feels like that's more than 100 million of revenue.
25:22
SPEAKER_01: It does.
25:23
SPEAKER_01: And that was the medium-term target.
25:25
SPEAKER_01: Yeah, exactly.
25:26
SPEAKER_00: I thought the 100 was a medium term target.
25:28
SPEAKER_00: Okay, we'll we'll we'll dig into that in a bit more detail in a minute.
25:31
SPEAKER_00: Um, and just thinking about the product categories and how how you drive that market share capture.
25:36
SPEAKER_00: Clearly, the footprint expansion is part of that, but then obviously dipping into other product categories or adjacent product categories.
25:44
SPEAKER_00: You've already talked about cookware and nice and knives being really strong for you.
25:48
SPEAKER_00: So, what what are the other kind of key adjacent categories that you really feel that you've kind of now got the product ranges there, or you're about to have them landing?
25:57
SPEAKER_01: Yeah, so as you say, legacy was strongest in cookware and knives.
26:01
SPEAKER_01: Um ironically, um, utensils and tableware, both those categories are bigger.
26:06
SPEAKER_01: So tableware is bigger than knives and cookware combined, and we've got a tiny share in that.
26:11
SPEAKER_01: In the market, you mean in the market, in the market it is.
26:13
SPEAKER_01: And the reason for that is it's the fashion, it's it changes, people break it.
26:19
SPEAKER_01: So literally, tableware is a massive opportunity.
26:22
SPEAKER_01: We have less than 1% share.
26:24
SPEAKER_01: And what the team have rightly done is double down on a lot of newness on tableware, really starting this last spring.
26:32
SPEAKER_01: Um, and it's about the fashion and colour we talked about, but it's also about making it very easier, much easier for customers to shop.
26:40
SPEAKER_01: Um so the way that we're merchandising products in box sets on tableware is just simple.
26:45
SPEAKER_01: Um what I want stores to be able to do is focus the time and energy on the assistance on products that need more discussion, other products are more pick up and go.
26:53
SPEAKER_01: Yep.
26:54
SPEAKER_01: But equally, if you've seen in our stores, everyone can touch and feel tableware, it's displayed nicely and it's engaging, it's quite inspirational.
27:00
SPEAKER_01: But the upside is in certain categories where we haven't typically played well in product development, and that's changing.
27:07
SPEAKER_01: Right.
27:07
SPEAKER_01: Okay.
27:07
SPEAKER_01: Taberware being the biggest opportunity.
27:10
SPEAKER_01: Um electricals today is it's a massive uh market, and it's about six percent of our sales, so there's more opportunity there.
27:18
SPEAKER_01: And then the other area that you know we recognise we need to do some work on is baking.
27:23
SPEAKER_01: Being very specific, you know, baking is a massive trend, obviously.
27:27
SPEAKER_00: And the just thinking about small electricals, is is the I mean, obviously the operating model is the same, but is that supply chain more complicated or is that is it not really?
27:38
SPEAKER_01: Not necessarily.
27:38
SPEAKER_01: I mean, I've I've been to a lot of the factories in China and you see our products in the same factories as some major brands that you would recognise.
27:44
SPEAKER_01: Um these are quality manufacturing facilities.
27:48
SPEAKER_01: Um what again is is really pleasantly surprising is in a category that typically is lower margin, we're still able to achieve through the direct model about a 60% margin on small electricals.
28:01
SPEAKER_01: Um, which because there's none of those costs in the middle, there's none of the brands.
28:06
SPEAKER_01: Exactly.
28:06
SPEAKER_01: So um again, the the value equation to the brands is very strong.
28:11
SPEAKER_00: And how in in and thinking about the sort of expansion of the product proposition and within the store environment, you you 1200, 1500 square feet stores, that they're relatively small boxes.
28:22
SPEAKER_00: How do you how do you navigate or manage that sort of competitive tension for space?
28:26
SPEAKER_00: Because space is at a premium um in your stores.
28:29
SPEAKER_00: And as you say, you've got very strong cab categories already established, but maybe you're a bit more mature there versus some of the new categories.
28:36
SPEAKER_00: How does that interplay work?
28:38
SPEAKER_01: Uh I think you've hit on one of our biggest opportunities.
28:40
SPEAKER_01: We have about 1500 products.
28:42
SPEAKER_01: Um, historically, and we're still working through this.
28:46
SPEAKER_01: Um, every product was ranged to every store regardless of size.
28:50
SPEAKER_01: Okay.
28:51
SPEAKER_01: Major problem.
28:52
SPEAKER_01: So we are going to be rationalising some of the assortment in the smaller stores, uh, to make it more shoppable, a much nicer experience.
29:00
SPEAKER_01: Um, and there will be an opportunity, I believe, for certain locations to have much bigger stores.
29:06
SPEAKER_01: You know, we could be going into the three to four thousand square foot in the in the future, and we will develop out ranges for those stores.
29:13
SPEAKER_01: Um, but equally, there's uh product development around extended aisle online.
29:20
SPEAKER_01: I mean, if we're carrying two different colourways in stores, there's no reason why we couldn't cover another two or three extra colourways online only.
29:28
SPEAKER_01: Yeah.
29:28
SPEAKER_01: So we can build out the assortment, but we need to do a big space exercise on space and assortment, which is still work in progress.
29:37
SPEAKER_00: Space range planning.
29:38
SPEAKER_01: Exactly, the basics of retail.
29:40
SPEAKER_00: Yeah, okay.
29:41
SPEAKER_00: And but I mean, actually, that reminds me, do is the sales mix materially different online versus store?
29:46
SPEAKER_00: I mean, partly because of this convenience element, or does it does it look similar?
29:50
SPEAKER_01: It's actually very similar.
29:51
SPEAKER_01: Right.
29:52
SPEAKER_01: It's surprisingly um, I think you will find the sales mix of certain products where people go into store, try, test, and then have them home delivered is specifically around certain bulky items.
30:04
SPEAKER_01: That's obvious.
30:04
SPEAKER_01: But no, it's fairly similar.
30:06
SPEAKER_01: Yeah, it's fairly similar.
30:07
SPEAKER_00: And uh you you uh answering Mark's question earlier about kind of when you when you um joined the business, you talked about you didn't really know the brand.
30:14
SPEAKER_00: I mean, I think that's probably quite a common thing across the market more broadly.
30:18
SPEAKER_00: So, how what what are you doing in order to try and move from being a retailer that sort of people stumble across, um if I'm being a bit tongue-in-cheek there, but versus someone that that that is a brand that people are really actively trying to seek out?
30:31
SPEAKER_00: What is it you're doing?
30:32
SPEAKER_00: How are you going after that?
30:34
SPEAKER_01: Well, clearly the store openings are helping, that's one thing.
30:36
SPEAKER_01: Um but uh the primary focus at the moment is around um paid media and social media.
30:43
SPEAKER_01: So we've we've we've had a lot of progress around um our own social content creation team.
30:49
SPEAKER_01: So we have a team in on board now, and it's only been in the business about eight months.
30:54
SPEAKER_01: Um a very creative young bunch of people that you know look at what's going viral in trend uh trending viral on online and then creating really short clips for primarily Meta, Instagram and Facebook at the moment.
31:08
SPEAKER_01: Um, and we've seen a really big uptick in how that's driving up.
31:12
SPEAKER_01: I mean in the last two years, it'll be two and a half X sales attributed to social media, um, and that it creates followers, it creates loyalty, it creates brand awareness, like you said.
31:24
SPEAKER_01: Um, the next thing we haven't tried yet is TikTok and TikTok shop, which is another opportunity I think that we lend well to.
31:32
SPEAKER_01: Um, but what we when we have social media, we're trying to not necessarily make it just bland about product, it's about food, recipes, inspiration, cooking together, the enjoyment of cooking, and that's what makes it fun.
31:46
SPEAKER_01: Um equally, the other complement to that is in this last year we've had about 15 influencers come on board.
31:53
SPEAKER_01: Uh we send influences to local store openings, so they're local in the community, they're following.
31:58
SPEAKER_01: It's a great way of getting traffic.
32:00
SPEAKER_01: Um, and the influencers so far this year have created you know just sort of nine and a half million impressions.
32:06
SPEAKER_01: Um, and we've got a bunch more influences coming on between now and Christmas as well.
32:10
SPEAKER_02: So, does that mean uh some of the the kind of the delta of growth is that sort of disproportionately coming from younger um consumers in terms of millennials, you know, staying at home, cooking rather than going to restaurants?
32:22
SPEAKER_01: I don't think I could tell you exactly.
32:24
SPEAKER_01: I don't know that, to be honest.
32:25
SPEAKER_01: Um I think No, I think it's quite an interesting spread.
32:30
SPEAKER_01: I think it's mass across, it's not age specific.
32:33
SPEAKER_01: I mean, the the age of the people creating the content is a lot younger, but the actual application to everyone, you know, of my age and a lot younger, I think it's equal.
32:41
SPEAKER_01: Yeah, it's kind of mainstream now, isn't it?
32:42
SPEAKER_01: It is mainstream, yeah.
32:43
SPEAKER_00: Yeah.
32:44
SPEAKER_00: Do do you I mean just one thing I mean before we're moving on, but in terms of thinking about Brian Brian Awareness Opportunity Marketing, I mean, how much do you know about your customers?
32:52
SPEAKER_00: I don't know if you have a loyalty programme or not.
32:54
SPEAKER_01: Um no, and this this is uh again an opportunity.
32:58
SPEAKER_01: Um we're going through a complete technology transformation this summer.
33:01
SPEAKER_01: We've invested quite a bit, and that's a major change.
33:04
SPEAKER_01: Uh, we wanted to do that before the business got any larger.
33:08
SPEAKER_01: So we've recently just changed our whole ERP system.
33:12
SPEAKER_01: We are changing all the checkouts in our stores, which are very old.
33:16
SPEAKER_01: Um, and we will be re-platforming on Shopify in the new year.
33:21
SPEAKER_01: Again, major investment because we're quite small, we're able to do it fairly quickly, which is great.
33:27
SPEAKER_01: What that will do, those technology changes will enable us to do quite a few things we can't do today, such as click and collect, right?
33:35
SPEAKER_00: Okay.
33:35
SPEAKER_01: Um, loyalty schemes, wedding lists, all of those sort of things are on the roadmap, which weren't possible with the current technology stack.
33:43
SPEAKER_01: So that's all you know coming in the roadmap for next year.
33:46
SPEAKER_02: Yeah.
33:46
SPEAKER_02: There's a theme that's come up a few times now in terms of investment in the business.
33:51
SPEAKER_02: You know, you you you you keep reinvesting and kind of thinking about the future.
33:55
SPEAKER_02: And you know, just looking at your gross margin um over 67%.
33:59
SPEAKER_02: I mean, very different from your Walmart.
34:02
SPEAKER_02: And the operating margin just shy of 6% at the moment.
34:06
SPEAKER_02: I think you've set a 10% target.
34:08
SPEAKER_02: But think about you know, but with that high gross margin, you've internalized a lot of costs that you would be outsourcing to you know suppliers.
34:17
SPEAKER_02: So that probably there's quite a lot of fixed cost in this business, and therefore there should be quite a bit of operational gearing.
34:23
SPEAKER_02: You know, each kind of incremental 10 million of revenue, actually, there should be quite a bit of uh ticker to that.
34:29
SPEAKER_01: Uh there will be.
34:30
SPEAKER_01: I mean, the the journey on you know 5.76% operating margin to 10 is primarily going to come to leverage and scale.
34:38
SPEAKER_01: Um, I think it's finding that absolute sweet spot of growth and investing in stores.
34:43
SPEAKER_01: But when you're able to achieve a two-year payback in stores, you would keep doing that.
34:47
SPEAKER_01: Keep going.
34:47
SPEAKER_01: You would keep going at that for sure.
34:49
SPEAKER_01: You develop the brand awareness at the same time.
34:52
SPEAKER_01: And I would, you know, I'd expect to see our e-commerce business remain at about 40% of our sales once we get to 100 stores.
35:01
SPEAKER_01: And e-commerce is a much more profitable channel than stores.
35:05
SPEAKER_01: Um, so our cost structure is fairly lean.
35:08
SPEAKER_01: It's our central store support centre, our team, and one warehouse at the moment.
35:13
SPEAKER_01: Um so there's a huge degree of leverage and gear into come, as you say.
35:18
SPEAKER_02: So the 10% margin over time, you know, we shouldn't view that as a ceiling because there's there should be natural operational gearing on top of that.
35:24
SPEAKER_01: We haven't gone out any further than the last couple of years on that number, but um I I think the focus at the moment is appropriately reinvesting for the growth.
35:32
SPEAKER_01: Um, you know, it's is a really balanced, profitable, structured growth journey.
35:37
SPEAKER_01: Yeah.
35:37
SPEAKER_01: That's what we want to have.
35:39
SPEAKER_00: I mean, I guess from a benchmarking point of view, I mean 10% EBIT margin, that that's pretty healthy, and you're gonna be you'll be kicking off a lot of free cash flow from that.
35:48
SPEAKER_01: Yeah, and I think it's it's that balanced act, like I say, of investing now for as those stores mature.
35:54
SPEAKER_01: Um and we you know the other thing that's interesting is we're we're depreciating our stores over a five-year period, not 10%.
36:00
SPEAKER_01: Interesting.
36:01
SPEAKER_01: So typically the stores are a 10-year lease with a five-year break.
36:05
SPEAKER_01: Yep.
36:05
SPEAKER_01: After five years, they'll be fully depreciated, uh, everything in them.
36:09
SPEAKER_01: So that you think you play that out in terms of the maturity curve of the stores we opened two years ago, one year ago.
36:16
SPEAKER_00: Yeah, yeah.
36:17
SPEAKER_00: Compounds quite nicely.
36:19
SPEAKER_01: Yes.
36:19
SPEAKER_00: U and just sort of um thinking a bit more about the consumer and some of the the competitive dynamics and potential risks.
36:27
SPEAKER_00: Um you you've talked a little bit about you know, a lot of the kitchenware categories are replacement cycle categories, high-quality products last a long time, and your kind of increasing amount of arguably discretionary spend through some of your seasonality.
36:42
SPEAKER_00: So, how how how do you think about sort of your sensitivity to the consumer cycle, consumer environment?
36:49
SPEAKER_00: Obviously, we're you know, everyone's quite sensitive at the moment to consumer confidence that's been in been in a bit of a doldrum period for a while.
36:56
SPEAKER_01: It has been for a while, and it's probably not going to change anytime soon around the corner, is it?
37:00
SPEAKER_01: I mean, in terms of doesn't feel like it, pressures, you know, interest rates, fuel prices, and so on.
37:05
SPEAKER_01: I think the interesting thing is I think there is just so much upside and headroom for the business.
37:11
SPEAKER_01: And why I say that is during the last you know 12, 18 months when consumer confidence has been challenged and people are strapped month to month, um, our highest selling ranges are our medium to premium ranges, not the lower end.
37:25
SPEAKER_01: Um, we've seen that in cookware, we've seen it in knives, and we've recently relaunched, you know, getting into base you know specifics, tableware mugs, and the most premium, hand painted, is the best selling.
37:36
SPEAKER_01: So I think you know, just never underestimate how smart customers are in terms of value.
37:41
SPEAKER_01: Value is not just a price point, yeah.
37:43
SPEAKER_01: It's what am I getting for that?
37:45
SPEAKER_01: And I think customers really understand value.
37:48
SPEAKER_01: So the fact they're able to trade and our more successful ranges are slightly more premium, gives even more confidence, I would say.
37:56
SPEAKER_00: Do you think you've benefited from in a in a more kind of cost of living pressure environment of customers trading down from sort of the branded product categories that sit at a higher price point relative to you?
38:08
SPEAKER_00: Because as you said, you're offering great quality, the products are almost almost inevitably being made in some of the same factories.
38:14
SPEAKER_01: I'm not sure I'll be able to determine that.
38:16
SPEAKER_01: I think there are a couple other major trends around, like I said, about um moving house or improving the house.
38:22
SPEAKER_01: Yeah, that's one.
38:23
SPEAKER_01: Yeah, I think the other thing is eating out is incredibly expensive.
38:27
SPEAKER_01: If you're on a budget and you have a young family, I mean um I think that's I've read very clearly over the last five years eating out's gone up by something like 40%.
38:36
SPEAKER_01: It's a huge change, and people are more and more cooking from scratch.
38:39
SPEAKER_01: Yeah, I think there's a healthy trend here around gut health and GLP1.
38:44
SPEAKER_01: There's a lot of people thinking about what they are eating, they're cooking from scratch and managing that themselves, and that's just naturally leading towards wanting to have better kitchen wear at home.
38:53
SPEAKER_01: So there's a couple of trends that I think are playing to our advantage.
38:56
SPEAKER_00: Yep, okay.
38:57
SPEAKER_00: And then just thinking about um sort of manage as a direct managing model, you there's there's a there's risks that are associated with that.
39:04
SPEAKER_00: You've obviously got currency risk, you've got supply chain risks.
39:07
SPEAKER_00: Um in the last two or three years, we've had quite a lot of supply chain disruptions with Suez and the Middle East, etc.
39:14
SPEAKER_00: So, how how how are you guys thinking about that in terms of because your gross margin is obviously such a key part of the economics of the of the business?
39:22
SPEAKER_01: Yeah, I mean we've seen quite a bit of um volatility on freight for sure.
39:26
SPEAKER_01: Um nowhere near back to the the COVID days, thank, thankfully.
39:30
SPEAKER_01: Um and we were very stable for a while there, and our freight rates have have increased over the last about eight weeks.
39:37
SPEAKER_01: Um but we've got some stability in what we are predicting um for the balance of the year, uh, as much as we can you know, in terms of working with our provider.
39:46
SPEAKER_01: Um we buy in US dollars and we we've appropriately positioned ourselves uh on US dollar, so that's you know it minimizes the risk there.
39:54
SPEAKER_01: So and we haven't actually seen any impact from the tariff situation to our business.
39:59
SPEAKER_01: Um you know, in fact, some of our suppliers have probably found it more challenging dealing with the US for a while, which does that help us a bit?
40:07
SPEAKER_01: Maybe.
40:08
SPEAKER_00: Right.
40:08
SPEAKER_00: And do you I mean, do you envisage having to push price through to the consumer in order to protect gross margin, or have you got mitigations for some of these cost headwinds that you talked about?
40:18
SPEAKER_01: We don't at the moment, but I think I'll come back to the some of the more premium ranges that are selling, you know, they offer you the opportunity for slightly more margin as well.
40:26
SPEAKER_01: Yep.
40:27
SPEAKER_01: Um so I think if you can you can mix and manage your margin through range as much as you can just retail inflation.
40:34
SPEAKER_00: Yeah.
40:35
SPEAKER_00: And I I I would assume part of your stock rationalization will give some opportunity for some margin benefits because either they're end of line clearances that you don't need to do anymore, or you get a little bit more volume and efficiencies.
40:48
SPEAKER_01: Potentially, yeah, absolutely.
40:50
SPEAKER_00: Okay.
40:50
SPEAKER_00: And they're just thinking about the competitor competitive dynamic and the landscape.
40:54
SPEAKER_00: Are there any particular pockets of competition that kind of you spend more time thinking about either an emerging specialist or brands going direct?
41:04
SPEAKER_00: Obviously, we've seen La Cruz have opened quite a lot of of their own stores, for example.
41:09
SPEAKER_01: Uh I I think I think we're like I say, I think we're quite unique in our customer service model, but there's quite a few D2C brands that are very interesting that are appearing with very deep pockets for marketing.
41:21
SPEAKER_01: Um, so you obviously keep a very close eye on them.
41:24
SPEAKER_01: Um, but I always think it's a case of you know plow your own furrow and make you know be a better pro cook.
41:30
SPEAKER_01: Focus on what you can exactly what you can impact.
41:33
SPEAKER_01: And I think we're very fortunate to have a well-developed um direct-to-consumer e-commerce channel ready, um, which, as I say, once we go to Shopify, there will be significant benefits through that site, that and that capability, that technology.
41:47
SPEAKER_01: Shop pay is you know well adopted by so many people in the UK already.
41:50
SPEAKER_01: So that will help with our conversion and so on.
41:54
SPEAKER_02: And just thinking about um sort of the longer term opportunity here and and capital allocation, uh, given the return profile of those new stores, presumably that's by far priority number one.
42:04
SPEAKER_02: But how do you balance that versus um you know liberating some of that cash flow to shareholders through through dividends?
42:10
SPEAKER_01: Yeah, I mean it's it's an ongoing conversation.
42:12
SPEAKER_01: I think at the moment, in the in the short term for sure, it's about capital allocated to store growth.
42:17
SPEAKER_01: Uh it is more than 90% of our capital is just stores.
42:20
SPEAKER_01: I mean, and we've got a bit of investment in um the warehouse to improve some efficiencies and capacity there, but minimal, it's mainly stores.
42:28
SPEAKER_01: Uh you know, it's something we would be on constant evaluation over the next six, twelve, eighteen months.
42:34
SPEAKER_01: Um but I think you know, I'd view our business as a growth business, yeah.
42:38
SPEAKER_01: And investing more back into the business to drive that growth and accelerate it would be the number one priority.
42:43
SPEAKER_00: Mark Mark and I was always have this debate with c with uh guests around buyback versus dividend.
42:48
SPEAKER_00: I mean you're you're on a sort of low, low teen P multiple, a lot you know, for high growth, potential high profit profit margins, that that feels low.
42:58
SPEAKER_00: Um do buybacks come on to onto that same discussion as well, or is or do you think if you go down any root route of returning cash to shareholders, it would be more through dividend?
43:08
SPEAKER_01: Yeah, it wouldn't be through buyback, no.
43:10
SPEAKER_00: And the reason for that?
43:12
SPEAKER_01: Uh in terms of the you know the the share ownership at the moment uh in the company with uh you know the the founding family um still in you know having a high ownership of the business.
43:22
SPEAKER_01: Um but that's something that's under constant discussion.
43:25
SPEAKER_02: And would uh MA ever be part of the strategy?
43:28
SPEAKER_01: I I think it could be.
43:29
SPEAKER_01: I mean I think the two questions often asked are international and MA.
43:33
SPEAKER_01: And I think we're clear that with the number of stores we believe in the UK that could be very successful for us, it's probably you know more than two years down the road for international.
43:45
SPEAKER_01: Everyone gets very excited about the word international, and it comes with a lot of cost, a lot of distraction versus a massive opportunity in the UK market first and foremost to drive the business and get it to more profitable growth as well.
43:58
SPEAKER_01: MA will be opportunistic.
44:00
SPEAKER_01: If it came up, then we would obviously look at it.
44:02
SPEAKER_01: And there have been a couple of things recently that we have looked at and decided not to.
44:08
SPEAKER_01: But yes, it's always going to be on the agenda.
44:10
SPEAKER_02: And would there be sort of adjacent areas or more capability within kitchenware?
44:16
SPEAKER_01: I would say more adjacent areas.
44:17
SPEAKER_01: Right.
44:18
SPEAKER_01: Yeah.
44:18
SPEAKER_02: Okay, yeah.
44:19
SPEAKER_02: Because I guess in terms of international, um, you know, would a kind of franchise type model make sense?
44:24
SPEAKER_02: Because you know, you've got this cost base in the UK and you're doing all the difficult things, the sourcing, kind of, you know, the product, uh, merchandising, etc.
44:32
SPEAKER_02: Could that be an option longer term?
44:34
SPEAKER_01: It could, because the size of our stores would lend to it.
44:37
SPEAKER_01: Yeah.
44:37
SPEAKER_01: It's a it's a small colleague base running a store, it's quite um you know, a relatively simple scheduling model and so on.
44:43
SPEAKER_01: So yes, that is an option.
44:44
SPEAKER_01: Um, the other thing we've recently done is we've outsourced our single warehouse in Gloucestershire to DHL uh this summer.
44:53
SPEAKER_01: So DHL obviously have you know they're global, they have operations both in Asia in terms of like holding product or operations in Europe.
45:01
SPEAKER_01: So I mean they're a global expert and they they will drive efficiencies.
45:05
SPEAKER_01: Um and we've quite clearly said that tech and logistics are not our core competence, so why would we try and do that in-house?
45:11
SPEAKER_01: Yeah, whereas product, brand, and customer service, that's where we should be focusing our energy, and that's that's that's why we've taken this action over the summer.
45:19
SPEAKER_00: Do any of your e-commerce sales go international or is it is it all 100% UK?
45:23
SPEAKER_01: It's UK at the moment.
45:24
SPEAKER_02: Um will that change with the Shopify?
45:27
SPEAKER_01: There's the opportunity for it too, yes.
45:29
SPEAKER_01: Um again, we haven't factored that into the business case.
45:32
SPEAKER_00: So great.
45:35
SPEAKER_00: Well, we just to wrap things up, we've we've we've uh raced through a whole series of topics here.
45:40
SPEAKER_00: I mean, Lee, if you could just distill in in very simple terms, what what is the business case for ProCook?
45:47
SPEAKER_01: I think we're first and foremost a growth business.
45:50
SPEAKER_01: Uh operating in a really fragmented market.
45:54
SPEAKER_01: And I think what we've done in terms of self-help on product and driving a unique customer service model in our stores gives us the right to win accelerated market share.
46:05
SPEAKER_01: Um not just in the short term either.
46:07
SPEAKER_01: You know, two and a half percent market share, you would hope there's a lot more to go at, and we've spent a lot of time on the fundamentals.
46:15
SPEAKER_01: Um and one of the hardest things to get right as a retailer is is product.
46:20
SPEAKER_01: And you know, we've got a you know really new, exciting commercial buying team who are making massive step changes every season now.
46:30
SPEAKER_00: Great, and then you're uh I guess sort of wrapping wrapping up.
46:34
SPEAKER_00: I mean, you're targeting 100 stores, 100 million of revenue, um, 10% operating margin.
46:40
SPEAKER_00: Are you are you able to give sort of some insights around timing, sequencing of realizing these milestones?
46:46
SPEAKER_00: Do they all kind of come together?
46:47
SPEAKER_00: Are there a sequence of events that uh our audience should be thinking about?
46:51
SPEAKER_01: Yeah, as I say, we came out with those in June 24.
46:53
SPEAKER_01: I mean, they're certainly not all meant to come in aligned at the same time.
46:56
SPEAKER_01: There's a there's a sequence in.
46:58
SPEAKER_01: I think you know, if I was to go through, that'd be it would be a 100 million would be first.
47:02
SPEAKER_01: Yep.
47:02
SPEAKER_01: Um I guess the hundred stores and 10% could be some somewhere close together in terms of timing.
47:08
SPEAKER_01: Yep.
47:09
SPEAKER_01: Um it could well be that we um accelerate um the store front as well.
47:16
SPEAKER_01: Um we're not cash constrained at the moment based on how the business is performing.
47:19
SPEAKER_01: So we're thinking about that very closely.
47:22
SPEAKER_01: Um and some of the stores, like I said, and you know, smaller locations, they're quite quick to operate.
47:27
SPEAKER_01: So yeah.
47:28
SPEAKER_00: I mean, I would have thought that your sales productivity per store is an opportunity, quite a significant opportunity uh from where you are currently.
47:36
SPEAKER_01: I think so.
47:37
SPEAKER_01: The the space and assortment planning exercise will throw up some very interesting opportunities there as well.
47:43
SPEAKER_00: Yeah, yeah.
47:44
SPEAKER_00: Um and uh for listeners who have um enjoyed this conversation, what what are the sort of two or three KPIs that um you would really encourage them to watch out for in terms of whether ProCook is really sort of delivering on on the plan?
48:00
SPEAKER_01: Yeah, I I think it would be you know we aim to drive the business omni-channel.
48:04
SPEAKER_01: That's that's the first thing.
48:06
SPEAKER_01: Um we should be gaining significant market share constantly over the next few years.
48:12
SPEAKER_01: And that that that should be the first thing to look at because even if the market is quite challenging, and Kitchenware market is a very stable market, very stable, is you know, so year on year would be very stable.
48:21
SPEAKER_01: So we should be gaining significant market share.
48:24
SPEAKER_01: Um, and as we continue to open stores, we'd expect to see our brand awareness start to notch up with all the work we're doing on social and paid media, um, and probably some investment more in um you know long-term brand building.
48:38
SPEAKER_01: That would that's something we haven't really focused on at the moment, so that would be the other opportunity.
48:42
SPEAKER_00: Or all of the marketing spend has really just been performance marketing and social marketing.
48:46
SPEAKER_00: Exactly.
48:47
SPEAKER_00: At this point, yeah.
48:47
SPEAKER_00: Today, yeah.
48:48
SPEAKER_00: I mean, and thinking about the uh ingredients that will drive you to 5% plus market share.
48:54
SPEAKER_00: Um, I think you've probably just listed most of them, but is there anything else that you would think about in terms of sort of breaking through to that 5, 6, 7% market share?
49:03
SPEAKER_01: I think it's as simple as everything we've talked about.
49:05
SPEAKER_01: Yep.
49:06
SPEAKER_01: Leverage the model we have, um, remain laser focused and not get distracted on other opportunities, other categories, be the best we can as a kitchenware specialist.
49:16
SPEAKER_01: Yeah.
49:16
SPEAKER_01: Um and I think there's an opportunity for us to really accelerate and notch up our customer service in store, which is um you know a massive point of difference.
49:26
SPEAKER_01: Uh and you don't see that in other retailers, I don't think, today in our sector.
49:30
SPEAKER_00: And a lot of your competitors have probably de-spected that as well, just because of cost pressures, wage cut, wage cost inflation, yeah, and NI, etc.
49:38
SPEAKER_01: Yeah, it is a challenge.
49:39
SPEAKER_01: I mean, we're a real living wage um provider, and we you know that's been our commitment for the last five years, and we're managing our costs through driving efficiencies while still doing that.
49:50
SPEAKER_00: So and um it's been a fantastic conversation, Lee.
49:54
SPEAKER_00: And if we were gonna invite you back in three years' time, well, we'd certainly love to invite you back in three years' time.
49:59
SPEAKER_00: What what would uh ProCook need to have achieved for you to have said that your strategy's been successful?
50:04
SPEAKER_01: I'm not gonna share any numbers.
50:05
SPEAKER_01: That's the first thing as a public company.
50:08
SPEAKER_01: Um I I just think we would, you know, three years' time, where would we be?
50:11
SPEAKER_01: Um much more of a household name.
50:13
SPEAKER_01: Market share continues to have a track record over the last three years.
50:16
SPEAKER_01: Yeah.
50:17
SPEAKER_01: Um, and just known for being that that household name that everyone talks about when it comes to kitchenware.
50:23
SPEAKER_01: Bringing excitement to kitchenware.
50:24
SPEAKER_00: Yeah, bringing that joy.
50:26
SPEAKER_00: Great.
50:26
SPEAKER_00: Well, Lee, thanks very much.
50:27
SPEAKER_00: Thank you.
50:28
SPEAKER_01: Thank you.
50:28
SPEAKER_02: Well, Phil, that that was a really interesting conversation with Lee and a much more interesting business than I thought it was going to be.
50:34
SPEAKER_02: Because you think about you know, physical retail, rollout story, you sort of grown slightly.
50:40
SPEAKER_02: UK only.
50:41
SPEAKER_02: UK only, give it given all the pressures.
50:43
SPEAKER_02: But uh, you know, what what did you what were your impressions?
50:46
SPEAKER_00: Yeah, uh a bit like you.
50:47
SPEAKER_00: I didn't really know the the the the business from a consumer point of view.
50:50
SPEAKER_00: I haven't I haven't shopped the stores.
50:52
SPEAKER_00: Um but yeah, look, I thought I thought it was a super interesting conversation.
50:56
SPEAKER_00: I like I love talking about retail given my uh my my career background.
51:01
SPEAKER_00: And uh I thought Lee Lee came across really well.
51:04
SPEAKER_00: I thought there are I was really taken by the fact that this isn't a business that's that's optimised and hasn't been optimised.
51:11
SPEAKER_00: There's there's a lot of I don't want to say immaturity, that's not quite the right word, but that there's a lot of low-hanging fruit, I think, in terms of how to drive the business forward, go after some of those market share gains, drive the margin.
51:24
SPEAKER_00: You know, we talked about seasonality of new product.
51:28
SPEAKER_00: Uh that feels like that's a that's an opportunity that's barely been tapped.
51:32
SPEAKER_00: Um, they're clearly going after it, but the the range um enhancements sound like there's quite a material opportunity.
51:38
SPEAKER_00: Shop fit, you know, they've got a portfolio of 80, they've done a dozen or so.
51:43
SPEAKER_00: Uh it's clearly giving positive returns.
51:45
SPEAKER_00: They are very early days on their marketing, social media, digital marketing, and it's a brand that isn't well known, but they've already got 80 stores.
51:55
SPEAKER_00: Um so yeah, look, I think I think the e-commerce opportunity sounds like it's really quite material and they they've sort of almost been fighting with one arm tied behind their back with their previous platform, and Shopify's a great platform.
52:08
SPEAKER_00: But um, yeah, what were some of your your takeaways, Mark?
52:10
SPEAKER_02: Yeah, well, so two thoughts for me.
52:12
SPEAKER_02: Um, you know, retail is clearly difficult, but you know, we've seen so many case studies over the years.
52:17
SPEAKER_02: If you are um a sector specialist and you dominate your sector and you try to be the best within your sector, you can have a great business.
52:25
SPEAKER_02: You know, Angling Direct is a great example of that.
52:27
SPEAKER_02: And we've we've seen you know several formats over the years that have worked.
52:31
SPEAKER_02: And um, you know, it's on that journey of going from regional to to national.
52:36
SPEAKER_02: So there's quite a long way of growth given the uh the concept has been uh proven up.
52:41
SPEAKER_02: But the the second thing is this whole issue of uh controlling all aspects of the business and direct source model, gross margin, pushing 70%.
52:52
SPEAKER_02: That is a really difficult thing to crack.
52:54
SPEAKER_02: Um but once you've cracked it, you're in this virtuous cycle of um being able to share the benefits of that with the consumer.
53:02
SPEAKER_02: So it's kind of a John Lewis product, but at a price point that's 20 or 30 percent below uh where where they are.
53:09
SPEAKER_02: And um, yeah, clearly that's driving the the like-for-likes.
53:12
SPEAKER_00: Yeah, no, I think that's a really good point to pick up on the gross margin.
53:15
SPEAKER_00: I mean, there's not there's not many UK retailers that are close to you know 67-68% gross margin, and that and that gives you a lot of room to really drive operating margin.
53:26
SPEAKER_00: You know, we we we gently pushed in on the the 10% target, and clearly if they're at six, 10's a long way to go, but it it feels like if they can get this this top line moving a little bit further, and if they can drive some efficiencies in the stores, get the sales productivity's up, then it feels like 10 that there's a lot of upside still from 10.
53:47
SPEAKER_02: Yeah, it's 40% online, so that that's a you know that part of the model ri really resonates, so the Shopify relationship will drive that further.
53:55
SPEAKER_02: But you know, two and a half percent market share, one percent in tableware.
53:59
SPEAKER_02: Um still a long way to go.
54:01
SPEAKER_02: And I suspect that hundreds uh store target, you know, that will just creep up uh as as the years proceed.
54:06
SPEAKER_00: Yeah, we've we we've probably caught Leah you know relatively premature in the kind of the transformation of this business and the economics of this business.
54:14
SPEAKER_00: But I I I suspect cash generation will be really quite material in two or three years' time.
54:20
SPEAKER_00: They're just on that cusp of of generating positive free cash flow.
54:24
SPEAKER_00: They're never going to be able to invest enough back into the store portfolio from you know, from what he described as a it sounded like it was a relatively cheap or or cost-efficient um shop fit.
54:35
SPEAKER_00: So I suspect I suspect if we were sitting down in two or three years' time, we'd be really pushing in much harder around uh capital allocation returns to shareholders and what what that sort of prospective free cash flow yield, what what he's gonna do with it, because I think that that's gonna be a nice problem to have in a couple of years' time.
54:53
SPEAKER_02: Well, hope you enjoyed that conversation with ProCook.
54:56
SPEAKER_02: Uh lots more interesting conversations with the chief executives in the weeks ahead.
55:00
SPEAKER_02: Do leave us a review, and if you have any interesting guest suggestions, do drop us a line.