The Little Red Roaster A Case Study By Jay Boushell Small family operations, like the Little Red Roaster make up the largest part of our country’s business base. The problem is that too many of them fail, not because of the lack of expertise or motivation, but because of poor business decisions. The LRR is a perfect example of a small operation taken over by a very capable and knowledgeable person, Kendra Gordon-Green. She is one of those hard working employees that have been given the opportunity to become an owner-operator of a small business operation.
At this point Kendra has not made the transition from employee to owner. Sadly this very situation is the reason most small businesses like the LRR never make. With two locations and 25 or more employees Kendra can no longer act like an employee or her business will most likely not make it. These are the changes she should make. (1) Kendra must begin to delegate the hands on operations of the business to key employees. (2) Concentrate on the retail and the catering and wholesale will naturally grow. (3) Invest in her people for they are her most important asset.
The Little Red Roaster, originally just a retail coffee shop in London, Ontario, offering a menu of coffees, teas, gourmet beverages, breakfast, light lunches and snacks, was established in 1995. The coffee shop had a reputation for having good food and coffee. Kendra Gordon-Green had been an employee of the LRR for seven of the eight years of operation and, in a leadership role, had been able to expand the business from a single retail business in to two, offering retail, wholesale and catering services. The original location was located in Wortley Village, the business and retail area of London.
The second location, at Covent Garden Village, was in downtown London, where the vendors were numerous offering the best selection of organic foods, award-winning meats, ethic foods, dairy products, varieties of sweets, and fresh flowers and elegant restaurants. Frequently hosted local art and cultural events were held in the indoor skating rink. Covent Garden Market’s LRR was established in 1999. Kendra had purchased the LRR business in late 2003 and soon realized she was competing in the service industry. With this in mind, she differentiated the
LRR from other cafes by concentrating on quick service, a friendly atmosphere and knowledgeable employees. LRR’s retail business attracted the 26 to 45 age female demographic, who lived or worked within 15 minutes of Covent Garden Market. They were considered coffee drinkers and most were dinking at least one cup of coffee per day. Kendra knew her customers wanted premium coffee and did not mind higher paying a higher price for it. The wholesale accounts were as follows. Novacks, a retail camping products supply. UPI’s EnviroStation, a gas station, offering coffee to employees and customers.
David’s Bistro and Cafe One, offered coffee on its menus. Also the John Labett Centre, a new arena in town had signed a five-year contract with the LRR to use its coffee exclusively. Catering by the LRR originated through a radio station, Q97. 5 FM, “Office of the Day Event”. The promotion consisted of free coffee and snacks. It generated a significant amount of awareness, but at an average cost of $5 per person, it turned into an expensive one. The promotion did get the LRR in to the catering business and as a result, the company’s catering service became well known and the LRR’s retail customers became the main source of catering business.
The LRR was a family-run business and Kendra, as owner-operator, was very hands on with regard to day to day operations. Her husband, who owned his own marketing business in London, helped her with marketing and promotions. Kendra’s father, who had years of experience as a purchasing agent, planned to handle all operations for the business after he retires in three years, but in the mean time helps out when he can. Coffee as a commodity is second only to oil, so the industry is good if you focus on the right segment. Specialty coffees seem to be the trend with an approximate 10% growth expected over the next several years.
Canadians drink coffee every day and with 67% of the adult population coffee drinkers, the demand is there if a business can capitalize on it. Growth of the Little Red Roaster will rely on how several issue are addressed . There is no doubt Kendra knows the business she now owns, but is still playing the role of an employee rather than an owner. If she wants the LRR to grow she will have to learn to delegate. A manager for each location should be a goal for Kendra, which would allow her to work on business strategies rather than physically doing the work herself.
Kendra will likely have to start this process by looking to have a manager for one of the LRR’s location and her running the other with a goal of having a manager for both locations. Another issue needing to be addressed is the notion that here main customers are female and a certain age group. I assume this has occurred simply because of her personal contact with her customers, and with women, as social as they are, I can see how this could happen. I would suggest that Kendra not to be satisfied with the status quoi. She should start by trying to reach the men in that same demographic, they drink coffee as well.
Gaining that male customer base will surely make a positive impact for her business. With London being the headquarters or major productions centers for many companies including, 3M Canada, EllisDon, Kellog Canada, Diamond Airgraft, Siemens Eletric and Trojan Technologies, the business potential is almost limitless. Here is where if Kendra had more time to develop strategies, rather than spending her time as a worker bee, those big companies would provide the perfect vehicle to expand the business, starting with the retail and then catering and wholesale as well.
A simple promotion, like a discount card, displaying both locations, listing all services and distributed to all employees of the above listed companies has been proven to increase business almost immediately. Looking at the income statement and comparing it with the industry average, another area needing to be addressed would be advertising and promotions. In a small business like the LRR, $14,462 is pretty high for only doing $400,215 in yearly sales. A business this size having all its competition close by, would not need a large advertizing and promotional budget.
Providing quality products, coupled with superior service will draw in your competition’s customers, thus allowing your competition to provide most of the advertising. Also, the salaries and benefits are very low for a 25 employee business, averaging only $6,000 per employee. Kendra must have mostly part time employee, which translates into a lack of continuity. If the LRR belonged to me, I would take the following action to move the business forward. First, I would try to find at least one employee, between the two locations, interested in more than just a pay check.
Once that person is found, start training this individual to become the manager of one of the locations. This might take some time, so be patient. Rome wasn’t built in a day and building a successful multi location business should be slow, but steady. During this manager training period, not only should the future location manager become proficient with the day to day operation of his location, but have this person involved in strategic planning for the future growth of the location.
Since the LRR already has a retail, catering and wholesale business, continuing to maintain all three segments of the business is very important. Once a business has offered a product or service eliminating one or the other is a carnal sin. While most of the focus will be on maximizing the retail opportunity, you’ll find the catering and the wholesale will grow on its own. This is the most natural way for organic growth to occur in a business. All things, even a business, grow from the center out and since retail is the center of the LRR, the business must grow from there.
As Kendra begins to free herself from the day to day operation of both locations she will be able to start to strategize on how, not only to bring new retail customers to both her locations, but also begin looking to expand both the catering and the wholesale segments of the LRR as well. It’s very natural for a small family run business to make mistakes on how money is spent or as I like to say, invest. In my opinion the LRR spends too much money on advertizing and promotions. The industry average is about 1% to sales and I will have to agree with that. Take that extra $10,000 and invest in that manager we talked about earlier.
Remember, people are your most important asset and you can never go wrong when you invest in them. Beginning to think about making some of your key employees full time will show them you care about them as well as you business. You’ll find the productivity will increase, thus increasing you sales per employee and naturally the business will grow. The Little Red Roaster is in the type of business that if approached from the right angle can be very profitable. Coffee shops are very popular and with the right products, atmosphere and employee will do nothing but grow. Since the LRR was started s a retail coffee shop at its original location and now with two locations, retail should be its main focus. Since the catering and wholesale growth of the business was organic, as the retail business grows so will the catering and wholesale. If Kendra Gordon-Green is able to transition from being hands on to managing her operation and accomplishing this by ultimately having managers at both locations. This will give Kendra time to develop strategies and I think the LRR will continue to grow. She must remember that a great business offers quality products and services and provides opportunities for the employees.