Cafes and restaurants can be hit hard during a recession, which makes the first half result of Retail Food Group, the manager of the Donut King, Brumby’s Bakeries, Michel’s Patisserie and bb’s café brands, all the more impressive. Revenue increased 38.8% to $69.7 million during the half, while net profit jumped 19.1% to $10.6 million. The downturn doesn’t appear to be having much affect on the company’s growth, with a profit of $21 million forecast for the full 2008-09 year, compared with $7.52 million last year.
The secret:
Retail Food Group has been upfront that the next 12 months will be difficult given falling consumer spending, lower traffic levels and poor consumer sentiment, although the company’s brands are proving to be very resilient. The company has also provided itself with some valuable insurance by spreading into the Chinese market, having sold a master franchise license for China in July last year. Already three stores have been opened and the franchise agreement calls for 20 in the first five years. It’s a relatively minor play, but diversification can be crucial in a downturn.
Labour hire company Skilled Group isn’t the most obvious candidate for a company doing well in the downturn, but the company posted an impressive 48% rise in net profit to $21.4 million for the six months to 31 December, 2008.
Total revenue rose 16% to $1.1 billion, while the group’s “other brands” division, which includes its healthcare and marine services business, was the star performer, with revenue climbing 4%.
The secret:
Skilled has been doing all the normal things to insulate its business from the downturn, including cutting costs, paying off debts and restructuring unprofitable divisions. But the real secret has been Skilled’s ability to position itself to maintain and grow revenue while clients in key sectors such as mining and construction are shedding jobs.
For example, while mining companies are shutting down new projects, they have not cut back on the actual act of digging stuff out of the ground. Skilled chief executive Greg Hargrave says that as long as Skilled concentrates on servicing those areas of a sector that actually produce revenue, it should remain busy. It’s a good lesson – pockets of growth can be found even within struggling sectors.
While luxury brands such as Herringbone and Morrissey have struggled in the downturn, Country Road has proven extraordinarily resilient. The company posted an 84% increase in first half profit to $10.3 million and a 20% lift in revenue to $178 million.
The company improved its margins during this period and even grew its cash position by $9.7 million to $31.6 million.
Perhaps most impressively, Country Road as also announced the establishment of a new brand for over-40s, which will be called Trenery.
The secret:
It’s not just discount chains like The Reject Shop that can attract the value shoppers – Country Road has been a big beneficiary of luxury consumers trading down to cheaper brands.
“Some of the designer brands, upper-tier brands, their customers are coming down to us,” chief executive Ian Moir said following the release of the company’s results. “They see quality and they see value, and we’re not seen to be luxurious or indulgent. We’re rather very high-quality, accessible goods.”
Country Road’s strategy of reducing its cost base over the last few years and looking for cheaper suppliers has also allowed it to offer some big discounts – always a winner in these times.
Perth-based internet service provider iiNet delivered a stellar result for the first half, with revenue growth of 75% to $205 million and profit growth of 50% to $11.4 million.
The impressive growth figures were partly the result of the acquisition of fellow Perth ISP Westnet, which was completed last year, but customer growth figures continue to be impressive, the on-net subscribers up 13% and VOIP subscribers up 25%.
The secret:
iiNet battles against some telecommunications giants, including Telstra and Optus. But chief executive Michael Malone’s ability to find niches keeps the company competitive.
Currently the company is enjoying huge growth from its Naked DSL product, which allows consumers to get an internet connection without having to stump up for telephone line rental as many of the big telecommunications companies force customers to do. Naked surpassed the 50,000 customer milestone in February, less than 18 months since its launch, after adding 22,000 customers in the first half – which goes to show that innovation can help you get through a downturn.
The incredible growth of online discount travel site Wotif shows no sign of slowing. In the first half of the 2008-09 year, the company grew revenue by 43% to $58.6 million and increased net profit by 21% to $20.6 million.
The company’s net profit margin held at around 52% while the number of room nights booked on its sites increased 37% to just over three million. The company also completed the integration of travel.com.au and is continuing its push in Asia.
The secret:
There is little doubt the downturn has helped increase the attractiveness of Wotif’s discounted products. But this is a company that wants to dominate the Australian market and is not going to let a recession get in its way.
It announced a licensing deal with popular news aggregation site Plugger.com.au in September last year, rebranding the service Wotnews and instantly extending its brand beyond the travel market. It launched its first mainstream advertising campaign late last year.
It increased its booking window from 28 days to three months at the start of the year, allowing it to push further into the traditional travel market as opposed to the last-minute, discount end. The lesson is clear – if you dominate your market, you have a huge defence against any downturn.
Franchise group Baker’s Delight has posted strong growth during the first half of the 2008-09 year, with sales up 9%. General manager Chris Caldwell told SmartCompany earlier this year that the company is on track to post global revenues of around $570 million, with growth of 6% in the Australian market. That’s quite an impressive result given the condition of the economy and the hammering taken by consumer spending.
The secret:
Baker’s Delight benefits from a few downturn trends, including the trend towards eating at home and the trend towards consumers rewarding themselves with inexpensive treats.
But the company has also launched something of a marketing blitz since the start of the year, including a recruitment campaign for apprentice bakers (the company is looking for around 500 and has had 6000 applications), a recruitment campaign for franchisees (it wants 150 this year) and an advertising campaign to be released in the coming weeks that will focus on encouraging consumers to pack a lunch for work. This is one company that will not see its market share fall in this recession.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
