How do firms in struggling sectors thrive?
How do businesses make money and create jobs in troubled sectors? Here four companies flourishing against the grain reveal secrets of their success.
The miserable GDP figures released towards the end of January, which showed that the economy shrank unexpectedly by 0.5 per cent in the fourth quarter last year, left even the most optimistic in business feeling gloomier about UK economic prospects in the face of spending cuts and tax rises. But while there are undoubtedly challenges for many companies there remains a stoical sense of optimism, particularly among businesses that have survived and even prospered in sectors which have been marked down as struggling or, worse, in decline.
If certain types of company flourish against the grain, is there a reason? Could we be witnessing examples of Chris Anderson's Long Tail theory, which suggests that business growth comes from carving out a niche? The editor-in-chief of Wired magazine says that consumers gravitate towards niches rather than the mass market "because they satisfy narrow interests better, and in one aspect of our life or another we all have some narrow interest".
Or is it because some companies adapt to their market better than others? In Wales, for example, farmers are working for Alzeim, which cultivates daffodils in order to produce natural galantamine, an active pharmaceutical ingredient in the treatment of Alzheimer's disease. By outsourcing growing to farmers, states Alzeim, it is providing agriculturalists in the UK "with viable diversification opportunities that are both profitable and sustainable".
Other companies, of course, innovate their way out of a sticky situation and at the Davos World Economic Forum in January David Cameron called for Europe to unleash enterprise: "Our biggest ambitions have got to be for innovation," he said. "We've got the raw material of good ideas - let's get better at exploiting them."
The UK is home to lots of good business ideas but there's no point in being highly creative if you can't make money or create jobs. Here, four companies at the top of their sector share their survival tactics...
Company: The Essex Pig Company
A 2009 Defra report noted that despite a rapid decline in the profitability of farming in the late 1990s caused by exchange rate rises, lower world commodity prices and the impact of BSE, the £4.7bn agriculture sector continued to show resilience to shocks in the wider economy. Landowners and farmers, it said, were overcoming volatility in the sector by diversifying and seeking other revenue streams.
Farming is one of the most dynamic industries in the UK, claims Jimmy Doherty, owner of The Essex Pig Company and eponymous host of reality TV programme Jimmy's Farm. It's the cornerstone of our civilisation, he continues, and is home to expertise and knowledge that has been built up over centuries. "There is a real connection between the general public and the great British farming industry because people want to know more," says Doherty. "They've rediscovered their food heritage. They want to understand the science and the ethics behind their food."
Nevertheless, farming's going through a "rough patch" admits Doherty. "What with world markets, commodity prices, feed prices sky high that will have to be translated to the consumer, fuel prices, and the inconsistency of weather patterns..." If the industry disappears, he cautions, we'll become reliant on foreign imports and lose the wealth of experience. "You can't get that back overnight."
Diversification is important for many farms and Doherty is heartened by the development of farmer retailing. Farm shops are no longer "selling bags of carrots on the roadside" but have become "amazing supermarket or boutique-type affairs. That's a real growth industry," he says. The key to success is offering a shopping experience that consumers can't get anywhere else, advises Doherty. "Anyone can push a supermarket trolley around, but they can't offer the consumer, say, a diverse array of cuts, or walking past the very animals, or talking to the producer. The consumer is seeking a bargain but they're also looking for something else. Value doesn't always mean cheap, it means getting something extra for your money."
At Doherty's 2,000-acre farm the differentiator is "old fashioned, traditional breed pigs and old fashioned ways of farming" resulting in unique products. He also has a 150-capacity restaurant. "We enhance value because it's real field-to-fork eating."
He says the TV shows have helped and hindered. "There are benefits-you're in people's homes but they're not regular customers. You bear your soul on TV. You have to be cleaner than clean. If I go to auction to buy something the prices go through the roof."
Company: Clean Coal Limited
At one time the coal industry was the biggest employer in Britain. But competition from oil, natural gas, nuclear power and then renewable energy sources meant consumption of domestic coal fell and the industry declined.
But coal is back on the radar as a source of energy because of underground coal gasification (UCG), not a new innovation but only recently viable commercially. A process that Rohan Courtney thought was too good to be true when it was explained to him in 2003, UCG is achieved by drilling boreholes into coal and injecting either water/air or water/oxygen mixtures. By extracting and converting coal in one step, it produces a low-carbon gas that can then be processed to provide fuels for power generation, diesel fuels, jet fuels, hydrogen, fertilisers and chemical feedstock.
In the past two years, says Courtney, chairman of Clean Coal Limited, the UK has issued 17 offshore UCG licences which means that British companies can now compete with the likes of competitors in Australia, South Africa, China, India and Canada. Coal is the biggest resource that the world has, says Courtney. If you add up oil, gas, wind, solar, and the sea "you still wouldn't get the equivalent of coal", he says. "Under the North Sea and the Irish Sea is the equivalent of about 500 years of our energy requirement."
It's quick and inexpensive, he adds. "The costs of importing coal are enormous and getting higher. UCG is about a third of the price of any other type of energy source. It's about cost and security of supply. Governments around the world are working it out because they have a lot of coal."
Clean Coal is giving itself a leading edge by investing in skills. "There were six or seven people around the world who had actually done it. We've got three of them in our team," says Courtney. The company has dealt with environmental and health and safety issues by bringing regulators "on side first". The next step is collaboration. "You need to raise £3m to £4m for the pilot stage, so we'll invite other UCG operators and investors and funds, including regional and EU funds, to put up money in the early stages."
Courtney has been a UCG evangelist for many years and in the early days "it was hard to get anybody to listen". These days, he says, "everyone other than Greenpeace" is happy. Energy is long term but with UCG you can be in production within a couple of years and produce gas early on. "It's going to be part of the energy mix. It's not the only answer. But if I was asked if I wanted UCG activity offshore or a nuclear power station next to my house I'd go for UCG every time," he says.
3. Carve out a niche
Holidaymakers began turning their backs on traditional High Street travel agents a few years ago as the Web looked more convenient and better value. Market research firm Key Note says 15 companies that held Atol (Air Travel Organisers' Licensing) licences went into liquidation last year.
Although agencies booked 45.4 per cent of all overseas holidays taken by British consumers in 2010, Mintel's Travel Agents Leisure Intelligence report suggests the traditional market has reached its limit. Mintel predicts that the trade will start to lose share again as the economy revives, with most growth being seen in customers creating their own holidays.
When they do use an agent, UK consumers want personal expertise and knowledge. So being a niche operator within the golf sector has helped Yourgolftravel.com (part of the Palatinate Leisure Group) stand out. Turnover was £28m last year and the projected sum this year is £50m. "We've had a fairly successful couple of years trading in the downturn and the travel sector has struggled significantly," confirms co-founder Ross Marshall, above.
"Everyone is fighting for the consumer pound, so travel, in terms of recreational/leisure spend, is very competitive. We've outperformed the market by providing a good product at a competitive price and we take advantage of failing and faltering competitors - we've bought seven in three years."
Although the company plans its first foray into the mainstream since it started in 2005, the core strategy has always been to offer specialist services. "It's difficult to compete with the likes of Thomson and Lastminute.com without multimillion-pound funding so our focus was always on being excellent in niche areas of the travel market," points out Marshall.
Because of problems with strikes, ash clouds and failing economies, Marshall says consumers are taking two or three short breaks rather than a two-week holiday abroad.
Yourgolftravel has improved its pricing and understands customers' needs, he adds. "Be adaptive to market conditions. I know a number of people who run high-end travel businesses, who have relied solely on corporate businesses that have badly suffered. One has lost 80 per cent of its staff in three years. They're not bad businesses but at the moment that market doesn't exist."
4. Invest in your brand
How has AIM-listed ceramics manufacturer Portmeirion turned a profit and acquired Royal Worcester and Spode in the process while esteemed competitors including Waterford Wedgwood have disappeared? Portmeirion chairman Dick Steele says there are several factors "not just one golden rivet", but he's certain that the firm's strategy to invest in its brand, even through recession, has been crucial.
With a stockmarket valuation of £50m and expecting a £5m profit this year, Steele says Portmeirion's balance sheet net assets are £20m. "The £30m difference is to do with goodwill and brand," he states. "We have four major brands that we nurture. As a director you are there to safeguard the assets and those brands are the biggest assets we have." Investing in innovative design has been a differentiator. Steele describes the design department as "second to none in the ceramics industry".
Crucially, he adds, the company is close enough to its customer to "know what she wants, to know how to delight her occasionally and to give her something she didn't know she wanted. It's a bit like courtship," he says. Quality manufacturing is also crucial. As Steele says, every time Portmeirion puts its back stamp on a piece of pottery - "we do that 20,000 times a day in our Stoke-on-Trent factory" - the company is putting its reputation on the line. But when so many other British firms have outsourced manufacturing overseas, why is the business still employing 500 people in Stoke?
Steele explains: "There is a premium to be paid for 'Made in England'. You do it because you've got a cluster, a skill base. It's not just people who know how to put handles on cups. It's people who supply machinery, who know how to repair it, who supply you with the products."
The executive team hanging on to some of the firm's core family values has helped, says Steele. "We're good people in the community, we've halved our carbon footprint. That's what I call the DNA of the business. If we can find markets that like what we do, we'll sell into them. We'll try even harder in the markets we are in, such as the US and South Korea. If the business is a little bit better tomorrow than it was today then you've done your job."
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