Case Study

Richard Worthington stumbled across an untapped market in Poland while looking to leverage business for the company he worked for at the time, Bakery Services. The bakery equipment market didn't find anything of interest in the former Eastern Bloc country, but Worthington did.
"It was hard to find a decent cup of coffee," he says simply. "It was strange because it was a developed market, with KFCs and McDonald's, but there were no branded coffee shops, despite the fact that Poland has a strong coffee culture."

But things were rapidly changing in Poland, with unprecedented retail development transforming the country's shopping habits and proving the key to Coffee Heaven's success. With the number of retail outlets doubling to 450,000 in the past decade, Poland has developed one of the strongest retail sectors on the Continent. Over the next 14 months, Poland will have the largest amount of shopping space (malls) coming on-line anywhere in Europe.

For Worthington, back in 2001, this potential market was hard to ignore. Poland was ripe for its first coffee shop chain, Coffee Heaven, to thrive in key retail sites that were easy to come by. At first, the business was a Bakery Services subsidiary, but it was demerged in November 2001 and is now AIM-listed on the London Stock Exchange, the first Polish company with that distinction.

Equity was initially raised in the London market to fund early entry and cover UK operating expenses. Once established, subsequent capital was raised in Poland to fund expansion. The nature of the funding was flexible, the only stipulation being that it was provided in local currency. After launching three stores, Worthington went to the local market and raised 2.5m in bonds, traded on the Polish stock exchange.

This underlines Worthington's business strategy for success. "I have strong beliefs in running the business within the local economy," he says. "We only employ Polish nationals and raise local money to expand and form business relationships. Also, it's a recipe for disaster not to be based here. You have to work within the economy, because the trick is creating a brand that has a world image but is flexible enough to give the market what it wants."

The first store was opened in 2001, north of Warsaw, focusing on coffee and food. Interiors are designed in bold, bright colours, and products are served in paper to deal with the high turnover. Worthington has purchased the best coffee machines, introduced coffee products that appeal to local taste, and initiated training for his staff.

The brand attracts a high proportion of women (about 70%) and there's a no-smoking policy. "That's ground-breaking," says Worthington. "They thought we were insane, because the Polish are big smokers, but it's proved popular with women. The fact that we don't sell alcohol or allow smoking means women don't feel they'll get picked up."

Worthington's second store recouped its investment after three weeks, and in less than four years the chain has become one of the leading branded food chains. By May 2003, nearly 2.3m-worth of development capital was raised through public bond issue in Poland and, by 2004, the number of stores had reached 22 with a further eight in the pipeline.

The brand is now represented in almost all key cities in Poland, including a prestigious site at Warsaw airport. Annual results in 2004 showed sales had increased by 57% to 2.1m (at constant exchange rates), with like-for-like sales growth at 17% for 12 months to March 2004.