From a slow start, Tim Hall has made Pod into one of the fastest-growing casual-dining chains in the country. As the company embarks on an expansion to 25 sites its founder and chief executive tells Neil Gerrard how he put the business on the path to explosive growth
Pod has hit annual turnover of £10m and nine sites in just over five years. How did you get started? I don't have a foodie background, but I observed that there was a huge emerging opportunity, loosely called fast casual dining. I could see the rise of Chipotle in the USA - this was in 2003-04. It seems like an age ago now, but back then in the UK grab-and-go sector there were just the supermarket chains, Pret and Eat and that was pretty much the only thing going on.
Why did you choose to create a healthy food brand? The trend towards healthy eating is unstoppable. And it will be one of those trends where you will look back in 20 years and say: "I can't believe people used to buy burgers and chips." It is going to be pretty revolutionary for the food sector.
So my view was create a business which has health at its core but has other brand values, such as environmental issues. I worried a bit less about price than, at the time, people did. If you remember Benjy's sandwich chain, you could get a sandwich, a bag of crisps and an apple for £1.99. My view was that people are much more price-elastic than retailers believed they were in this sector. So if you have the right product, packaged in the right way, with the right price point, people will spend £5-£7 on a lunch dish.
So how did it go in the beginning? I teamed up with Kate Skerritt, a former director at Pret, because I had no experience in the catering sector. I couldn't raise money on the basis that I am some bloke off the street who has a good idea, so I had to have someone alongside me who had the pedigree. Kate is a trained nutritionist who has fabulous operation skills, but she is not commercial. I am commercial but can't do the operating stuff, so we were a great partnership. I raised £500,000, and at the end of 2005 we opened our first shop in London Wall and it was a bit of a flop, basically. It didn't work.
Why didn't it work? People didn't agree with my perception of what they should be eating, which would be right because I didn't know much about food. Our menu design was salads and smoothies because we thought, like everyone did then, that healthy food is green and cold. We got talking to customers who loved the idea and wanted to buy healthy food, but also wanted hot foods and breakfasts. So we began to explore food development in those areas. We rebuilt the shop in May 2006 with all the new thinking.
So how did you manage to turn customers on to healthy food? We have a slightly silly checklist of four words that new food has to get through when we are doing the tasting process, and that is: "delicious, delicious, delicious, healthy". "Healthy" is utterly secondary when it comes to tasting food. If it is not delicious, it doesn't matter how many calories it hasn't got in it. In fact, we were very worried about even using the word healthy until a couple of years ago because people would immediately psychologically position you and think, if the food is healthy, it must therefore be revolting. We almost had to sneak the health message in at the beginning to avoid that mentality. Now that is changing.
You have just raised £3.5m to build the company to 25 stores. Who is backing you? It's a company called JGR Capital, which is a small private equity company. James Paget is one of the founders of JGR and has joined the board. They had invested in the company in a small way for some time, but they have seen the development of the current trading stores over the last couple of years and through the recession, and the performance of the stores has led them to believe we have got significant potential and therefore it is worth backing us.
Who are other the shareholders? We have a lot now, around 90. We weren't like some businesses, where you get a big investment early to go out and build a business. That has lots of pros, but also lots of cons. Because we couldn't secure that amount of money upfront, I ended up raising small amounts of money from a large group of people. It was much more time-consuming but, in a way, the drag on expansion that caused was a huge benefit to us, because we had two years just playing with menus and layout and product and really concentrating on one store to get every bit of the model right. You need that bedding-in period to get it right. I think some brands roll out too quickly and you can see the mistakes in stores being repeated.
But you are about to roll out incredibly quickly. Yes, we are aiming for 25 sites with the financing that we have in place. Today there are nine trading sites. We will be opening our 15th in September. We have four under a quite aggressive build process at the moment. One is opening on 20 June, and another on 27 June, so it is getting really rapid.
How will you cope with that, having started quite slowly? Well, we opened six sites in 12 months in the 2009-10 period. We got to three very slowly, but then the recession provided a great opportunity for us because suddenly rents in good locations became affordable for small businesses. A by-product of that was that we got a really good store opening system and team in place who know what they are doing. So we were then able to say to JGR: "We can do this. And we can do it at the pace of a store a month just with the existing team."
How did you find trading in the recession? People were a bit price-sensitive and were eating out less in early 2009 after the Lehman Brothers collapse. I don't think the redundancies in the City at the time had much of an impact. It was the fact that those people who were still at work were more nervous about their future suddenly. But that was quite short-lived. We responded to it with some slight tweaks to the menu and we ended up trading reasonably well through that period, which, again, supported the investors' view that the model was fairly robust.
How are you dealing with food price inflation? One of the advantages of the growth process we are going through is that we are able to negotiate harder with suppliers. If I am going to double my order within 18 months, it is much easier to fix a price. If you go into negotiations and say you have no expansion plans, you are going to end up having to pay more. So, in a way, our expansion is offsetting the food price increase. But, of course, there are things that are going up in price which are unavoidable for us. I do think it is a real concern, and at the end of the day it is going to have to be paid for by the customer.
POD: Facts and stats
Turnover £10m (from nine sites)
Profit margin about 20%
Cost of opening a new site £350,000
Staff 100 staff (70% full time)
Average spend per head £6
Weekly turnover at most successful site £30,000
Five top tips for raising finance
Tim Hall estimates that he has raised £11m for his company since 2005, speaking to hundreds of potential shareholders. Here are his five top tips for convincing investors to back your big idea:
1 Start back to front Talk to investors about how they get out. If you think of it from an investor's point of view, they might want to put some money into your fantastic restaurant business, but they may want to keep it there for only three or four years. So think carefully about how your investor will exit the opportunity as well as getting in.
2 Think about your sector in general Don't just bang on about your fantastic burrito shop. Why do you think the burrito sector is going to be as big as the burger sector? It is the general point you need to get across.
3 Be normal with investors Investors don't like nervous people sitting there, spouting figures at them. People get put off, because if you are really nervous with them, they wonder what are you going to be like when dealing with a supplier or a member of staff. Chill out and have a normal conversation with them.
4 It's warts and all Everyone realises that not everything in life is brilliant, so tell investors the things that are bad. It will make them trust you. They would much rather hear that you had a bad first quarter but that the underlying trend is positive than have you pretending it wasn't bad.
5 Plug away It takes a long time and it is hard work. God knows how many people I have met who haven't invested. Fortunately, hundreds have, but it is very time-consuming, so be prepared for a long, hard slog.