The Little Bakery That Grew

• The little bakery that grew.pdf

The little bakery that grew.pdf

Roger and Lesley Gillespie opened a bakery in the 1970s to support the work of an alternative-living guru. Now their Baker’s Delight is a multinational hit. By James Kirby

They may not be household names but Roger and Lesley Gillespie are two of fran­chising’s most successful operators. Over the past three decades their Baker’s Delight chain of hot bread outlets has become a feature of virtually every shopping strip in Australia and the Gillespies have built a personal fortune of $100 million, according to the BRW Rich 200. 

But the business is at a crossroads. The executive chairman of Baker’s Delight, Roger Gillespie, says, “We are undertaking a major review of the entire business. It is time to make some big decisions.” With more than 680 outlets, including 13 in Canada, Gillespie says the company is reviewing its financing demands, including the possibility of a stockmarket float for its Canadian opera­tions. Also under review is the management structure of the company - it is without a chief executive - and the implications of a foray into the North American market. 

Though they rarely give interviews, the Gillespies are surprisingly frank about the challenges for the group. Last year was a milestone for the company. The Canadian bread shop venture - branded as COBS Bread because the Baker’s Delight name was already taken - was the first big move outside Australia and New Zealand. The Gillespie family moved to Vancouver for several months to ensure the new business would succeed. 

Gillespie says: “We did substantial homework on foreign markets and found that Canada was the most comparative market to Australia. They have a strong franchise sec­tor, just like Australia, and there were many similarities that work in our favour. We also discovered that, on average, commercial property rentals were 30-50% lower than we have to pay in Australia, and that was a major factor in our decision to enter the market in the Vancouver district.”

Unlike Australia, where only about 20 Baker’s Delight stores are company-owned, the entire 13-store COBS Bread network in Canada is company-owned. Keeping the stores in-house has allowed the Gillespies to experiment with supply and service systems, but they clearly intend to find new finance to back the North American operation. 

“All financing options are on the table,” Gillespie says. “We are considering a number of ideas that we have not contemplated pre­viously. One of those options is an initial public offering to finance our plans. We have not made any specific moves in this area, but a float is under consideration. Alternatively, we might co-finance the Canadian business with a business partner.

“We are also interested in doing a joint venture with another franchise where we might co-locate in shopping areas and explore new opportunities. Across Canada I’ve seen the Wendy’s hamburger group reg­ularly sit side-by-side with a doughnut chain called Tim Hortons, and I think the same concept might work here in Australia if we were to join forces with somebody else.”

The Australian operations of Baker’s Delight have matured. It opened 20 new stores in calendar 2004, bringing the total number in Australia to 634, with another 36 in New Zealand. Group turnover is expected to reach $450 million for the year to June, which would mean revenue growth of about 5%, positioning it alongside other mature brands such as Harvey Norman and Forty Winks. Sales growth peaked between 2001 and 2003 at 27%. 

“We have now got into many of the loca­tions that a company like ours might occupy so the next challenge is finding new growth opportunities, not just for the brand but for our franchisees and our staff,” Gillespie says. 

Braeden Lord, a longstanding lieutenant of the Gillespies, is charged with running the Canadian subsidiary, so the duo has succession issues. They need to replace former chief executive David Bayes, who left the company to join financial franchise Mortgage Choice late in 2004. (Bayes’ chairman at Mortgage Choice is former McDonald’s Australia chief executive, Peter Ritchie, a former director of Baker’s Delight.)  

Alternative living

The prospect of a stockmarket float or multinational operations was a long way from the Gillespies minds when they entered the bakery business back in the 1970s. The couple were deeply involved in alternative living, associating themselves with an Indian philosopher, Vijay Yogendra, in Melbourne. 

With the co-operation of a private philan­thropic group, the Helen Vale Foundation, the Gillespies and Yogendra (and a circle of young people including Michael Myer of the Myer family) opened an alternative school in St Kilda.

Yoga and eastern meditation were an important part of the school culture; a sec­ond school was later opened in the town of Warwick in Queensland. (Vijay Yogendra and the School of Total Education remain in Warwick, though the Gillespies are quick to point out they have not been involved with this group for more than 20 years.)

Roger Gillespie’s family had been prominent in the baking sector. His father Ron owned and managed Southern Bakeries and later became a trader in bakery equipment helping migrants to open bakery shops around Australia.

“It was the ’70s and we were trying to make a difference and explore new ways of doing things,” Roger Gillespie says. “We had a school and we were trying to help disad­vantaged people in various ways. Well, the problem was that in 1974 there had been a very severe recession and the Helen Vale Foundation funds were drying up. So I decided a good way to get some funds for the trust would be to open a bakery, and I opened the Old Style Bread Centre in Ashburton. That was my first bakery,” he recalls. 

BAKER’S DELIGHT FOUNDED: MAY 1980

OWNERS: ROGER AND LESLEY GILLESPIE
OUTLETS: 683 (AUSTRALIA 634, NEW ZEALAND 36, CANADA 13) 

EMPLOYEES: 13,600 

ANNUAL REVENUE: $450 MILLION

The Old Style Bread Centres became a chain of bakeries in Victoria and later changed its name to Brumby’s Bakeries (Brumbys Bakeries Holdings is now listed on the Bendigo Stock Exchange). By this rime the Gillespies had broken away from both the Helen Vale Foundation and the Old Style Bread Centres to form Baker’s Delight. Baker’s Delight marks its 25th anniversary this year. 

“We had an unusual start, we did not take the classic MBA route or anything like that. The evolution of the business is worth know­ing because it still informs a lot of what we do in terms of trying to retain good staff and getting involved in corporate philanthropy,” Gillespie says. 

“Franchising is a different business, if you look at it theoretically it is a new alignment of capital and labour. We never wanted to be bosses sitting on top of some capitalist enterprise; we see franchising as a pretty good way to align the interests of many different people.”

Gillespie says recruitment and training have been central to the company’s success. Baker’s Delight was one of the first fran­chises to qualify as an accredited retail train­ing organisation and it has strong links with TAFE colleges in Melbourne and Sydney.

Founding director Lesley Gillespie explains: “Good recruitment is a key to our business, but I will be the first to concede that getting new staff is hard and it is going to get harder as the labour shortage starts to bite next year.”

She says the best encouragement for new recruits into Baker’s Delight is the prospect that they may one day become a franchisee. “We are trying a range of initiatives to show people we are offering a career. The real opportunity here is to become a bakery pro­praetor,” she says. With high fixed costs for baking equipment, the entry cost of about $380,000 for a new franchisee is high.

Basic training for staff takes about four months. Franchisees can expect aver­age annual turnover per outlet of $515,000. The Gillespies encourage franchisees to take on more responsibility once they are established. More than 100 franchisees run two outlets and another 30 run three.

RISING NICELY 

YEAR     SALES ($m)     CHANGE (%) 

2001                 258.97                              9.9 

2002                 337.79                             30.4 

2003                 406.72                             20.4 

2004                 430.28                               5.8 

Source:  Baker’s Delight 

 

The company is testing technology that might change the way bread is made and enable bakers to keep more sociable hours by “setting” ingredients the night before baking. “Our people have to start at 3:30 in the morning. This is an experiment and it is not fully proven yet, but the technology could allow people to start at 6am. That would make a huge difference to our industry.”

The Gillespies are regarded by the industry as among franchising’s elite. Rod Young, the managing director of DC Strategy, says: “People in this business look at the Gillespies as pioneers. They have built a really significant business that is testimony to what can be achieved in the franchise sector. They were one of the first franchisors to get really serious about training, and now the move to Canada is also something that could serve as an inspi­ration to many other people in this industry.”

Young, a specialist in franchising, says, “Roger Gillespie is the nearest thing to “Mr Bread’ in Australia. The history of Brumby’s and Baker’s Delight goes right back to him. We have put him in the franchising hall of fame, but I am still surprised how little pub­lic recognition he has received.”

Among the top franchise operators asso­ciated with the Gillespies is Geoff Harris, the co-founder of Flight Centre, the $17-billion travel agency. Harris advised the Gillespies when they entered North America. 

Community work 

Outside their daily business activities, the Gillespies support a range of causes, includ­ing Breast Cancer Network Australia. The network has free office space in Baker’s Delights Melbourne headquarters. 

The Gillespies see corporate sponsorship as a key part of the business, and they link their marketing efforts with philanthropy. In 2004, the group gave an estimated $25 million worth of bread to charity. 

Roger Gillespie says: “Our franchisees pay about 2% of their revenue to the com­pany for group marketing costs. This goes towards television advertising and other costs of that order. On top of that we try to encourage individual franchises to make extra philanthropic efforts on their own. It might be something like getting involved with the Breast Cancer Network fundraising or it might be a simple effort like sponsor­ing the “best and fairest’ with the local footy team. I believe it all adds up to make a better company.”

 

BRW, p42-45
20-26 January 2005