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Published 03 September 2012 06:30, Updated 04 September 2012 05:07
“We are now starting to deal with very large players who are interested in our brand and we need to make sure we have enough scale and resources,” Jones the Grocer director John Manos says. Photo: Luis Ascui
Australia has one of the most concentrated supermarket duopolies in the world. About 80¢ of every dollar spent in supermarkets in goes either to Coles or Woolworths. So what does a small Australian supermarket franchise do to respond?
For Jones the Grocer the answer has been to go global. First in Singapore, then the Middle East, then elsewhere in the Asian region. So successful has the overseas foray been, the company has become the target of investment from a global luxury brand, Louis Vuitton.
In Australia, it was a slow start. The director of Jones the Grocer, John Manos, says the company was acquired in December 2005 as a Woollahra-based business that had a small number of franchises. The first 18 months, he says, were spent understanding the business. He noticed that in Woollahra the store was popular with Asian customers. “They were buying cheese and groceries and taking them back to Singapore and Hong Kong,” he says.
Jones offered Asian customers a mid-priced product that was not readily available in Singapore, the general manager of Jones the Grocer, Esther Iachelini, says. Australian produce also had an excellent reputation with Asian customers. The stores were turned into a combination of cafe and supermarket.
The Singapore play came about because it was concluded that the Australian franchise was “difficult to scale”, says Manos. The population size in potential areas tended to be small and it would have been necessary to build a “lot of small stores”. It was concluded that it was more attractive to look at overseas markets. Singapore was chosen because of its relatively Western orientation and because many Singaporean students study in Australia there was a high awareness of Jones.
It was also seen in Singapore as an “aspirational brand”, Iachelini says. She says it provides dining experiences that reflect a lifestyle. “There is a gap in that market. In the middle market there are only a few players.”
A partner was found in Singapore and in 2007 the company’s first international store opened. “The format was twice the size of the biggest store in Australia,” says Manos, yet he says the entire opening inventory was bought within four days.
“We redefined the landscape,” says Iachelini. “We went to a site that was a disused army barracks. That area has since developed into a food haven.”
Then further opportunity opened up. Manos says that in 2008 the influential London-based Wallpaper magazine named Jones the Grocer as the best food store in Asia. An approach came from a London-based investor who proposed looking for new markets in the Middle East.
“We visited the Middle East, Dubai and Abu Dhabi,” Manos says. “We launched in Abu Dhabi. It proved to be a wise choice because as soon as we opened in Abu Dhabi, Dubai crashed. Abu Dhabi became the capital of the United Arab Emirates.”
The store, which opened in 2009, was again immediately successful. This was partly because it was located in the same building as one of the biggest sovereign wealth funds in Abu Dhabi, which increased the exposure of the store and enhanced its reputation. “The Crown Prince dined three to four days a week [in the Jones’ cafes]. He had people like Hillary Clinton, Kevin Rudd and Tony Blair.”
The company went on to build six more stores in Abu Dhabi and one in Dubai. A store was established in the headquarters of Etihad Airlines, which further enhanced the brand’s exposure.
The company has an unusual geographic spread with stores, which includes both supermarkets and cafes, in Singapore, Australasia and the Middle East. About 70 per cent of the revenue comes from the cafes and 30 per cent from the retail operations. The regional spread is about 45 per cent of the revenue from the United Arab Emirates, 25-30 per cent from the two stores in Singapore and the rest from Australasia.
“Dubai is a hub,” says Iachelini. “People who visit Dubai are different from people who visit Singapore.” The next step is a move into the Asian region, says Manos.
“Next will be Thailand, Malaysia and Hong Kong. The following year it will be China, Shanghai.”
In the Middle East, they will be looking at Qatar and Doha, says Iachelini. Saudi Arabia is also a possibility. The company has a very light management structure. Strategy is a joint exercise between Manos and Iachelini. There is a group head chef who liaises with each country, a pastry chef, a head baker and a marketing manager.
The company’s headquarters are in Brunswick, Melbourne. There is a separate human resources function for each region. Icahelini says that in each store there is one chef, one general manager and “key retail resources” vital to the global strategy.
“During the start-up phase of a store we have a team of up to 10 people – including a barista and a fromager – who come from our stores in Australia. It allows us to roll out very quickly.” Adjustments need to be made for local cultures. In the UAE, for example, there is less communal seating than in Australia. But there is an attempt to maintain continuity of design and construction.
The philosophy is to concentrate on promoting artisanal, Australian suppliers. Despite the high domestic dollar, 50 to 60 per cent of the product is sourced from Australia. Manos says the company does not hedge but it does create natural hedges by buying in US dollars, euros and the Australian dollar. “We have been able to balance the strength of the Australian dollar partly by doing that,” he says.
And the accolades have continued. In 2011, says Manos, the company won the BBC’s Good Food award for the best cafe in the Middle East. In the same year it won the Singapore Tatler award for the best food store.
The interest in the brand then further intensified and Jones’s global footprint is likely to increase again. After a period of negotiation, the company received a bid from L Capital, the private equity arm of Louis Vuitton, on August 2. The managing partner of L Capital Asia, Ravi Thakran, says the brand reflects the “hip” Australian lifestyle. “The company is poised to grow five-fold in five years,” he says. “There are not many opportunities with this kind of potential.”
Manos says: “We are now starting to deal with very large players who are interested in our brand and we need to make sure we have enough scale and resources.
“We got to talking and it led to this. It will give us access to large partners and real estate in key markets in Asia. They can provide key input and lower our execution risk in China.
“At the moment we are growing at the rate of five stores a year; seven to eight is our limit.” He says the expansion has been funded from retained earnings.
“We are an Australian origin brand,” says Iachelini. “People connect Australia with good food. The challenge is to keep scale. On a daily basis we are contacted with opportunities in Europe, North America, India and South America. The next market is probably India.”