Business Irish

Wednesday 24 October 2018

'Dragon' hopefuls should expect strong words from coffee supremo

Bobby Kerr chief executive of Insomnia Coffee Company

Bobby Kerr, chief executive of Insomnia Coffee Company, believes that experience and business savvy honed in the good times will prevail in the downturn
Bobby Kerr, chief executive of Insomnia Coffee Company, believes that experience and business savvy honed in the good times will prevail in the downturn

Roisin Burke

He's set to breathe life into money-spinning ideas and put fire into the belly of would-be entrepreneurs, yet Bobby Kerr's debut TV role seems an unlikely one.

As one of the five "dragons" in RTE's new show 'Dragons' Den', it's difficult to picture this good-humoured, affable character in dragon mode.

"It's a tough time to be raising finance with banks, so if you can come in with your idea and put it on the table, ok, you give away a bit of your equity but you buy in experience and funding that may bring things to the next level. I think it's great," he says.

The show will require that Kerr genuinely spends his own money on the investments, so fledgling entrepreneurs should be prepared to run the gauntlet of a grilling from this self-made millionaire.

"It's the whole people thing that turns me on. If I can bring something to a new business and become part of something -- that's what lights my fire."

But it was Ireland's coffee revolution that first ignited his interest over 10 years ago. Having been involved in the acquisition of two American cafe chains in the US when he worked with Campbell Bewley's Group, he saw an opening for the American and Italian coffee culture here in Ireland.

"I just saw it as the type of fusion that was definitely going to work in Dublin: Very credible food to go, really good coffee and really good beverages."

In 1999, he set up Perk Coffee Shops with cafes in Grafton Street, Baggot Street, Dawson Street and UCD. In 2003 he bought out Fitzers, who held 50pc of the company, and then sold Perk to Insomnia. He invested all proceeds of the sale in Insomnia and became its chief executive. Four years of 30pc year-on-year growth followed for Insomnia, resulting in expansion from 17 to 50 shops and increased turnover from €5m to €17m.

"When I worked in Bewley's (in the early Nineties), 2pc of our sales were cappuccinos and lattes -- that will tell you how things have moved on," he says.

But this summer, Kerr saw that mood change again. A coffee crunch was a natural lead on from the credit crunch and cutting back on €2.50 coffees has been an obvious economy for many.

He says Insomnia is tackling this by offering customers value deals, such as sandwich and coffee value combos. He also intends to roll out other value offers to drive sales.

Summer was "tough enough," he admits.

"It is about value in today's market and if you're not giving value people have plenty of opportunity to go somewhere else," Kerr says.

More radically, planned expansion of Insomnia is now on hold

"We've sort of just slowed down a small bit because we want to consolidate our position. We're not sure how the markets are going to go so we just want to be sensible about it. What we're trying to do now is make sure the Irish operation is all ring fenced and that's what we've been working on for the last nine months or so," he says.

But it's Iceland's catastrophic financial meltdown that has had the biggest impact on Kerr's plans.

In January, Icelandic investor Penninn bought into Insomnia for 51pc at €12m -- an investment which up until last month looked like a huge bonus for Insomnia. But expansion plans have now been moved out from the start of next year to the end of 2009.

"We don't know -- is the honest answer," Kerr says when pressed on Kaupthing bank-funded Penninn's future, and what it could mean for Insomnia.

"We may have to look again at funding," he admits.

Once Penninn bought into the Insomnia chain, it left the running and management of it unchanged, but expansion, using the Insomnia expertise to drive it, was the ultimate plan of action.

"We were looking at expansion in Finland particularly, where Penninn has a base, and Norway. There are some companies that we've identified as possible takeover targets. We've done some homework on it but we haven't engaged yet."

While Insomnia had been opening at a new location every month up until June of this year, new coffee houses are not a key expansion route at the moment. Kerr is focusing instead in growth via a concession agreement with Spar, where Insomnia has a franchise barista business. It also maintains over 70 bean-to-cup machines in Spar stores.

"Those two parts of the business are going to continue to expand aggressively," he says. We've opened three of them this month."

There have also been discussions about an "exciting" catering collaboration with Campbells, but Kerr won't be drawn further on that.

On the positive side of the financial turmoil, Kerr says that Insomnia is in a position to make the most of falling commercial property prices on the Irish market. Until recently all coffee outfits were fighting it out for the same retail space and the only winners were landlords. Now landlords are more concerned about good tenants who pay the rent rather than the highest bidder.

"It always takes a while though, for it (a downturn) to hit the commercial property market, in my view. It actually takes probably 18 months to get down to where there's real value."

Another silver lining is opportunity for acquisition. "The expansion over the last three or four years means we're almost over-retailed," Kerr says.

That means consolidation and he wants Insomnia to be part of that. " There will still be opportunities" and he believes that experience and business savvy will prevail in the hard times.

"We've been there through the walking on a tightrope, small cafes, wondering how you're going to pay the bills the next week.

"We've been there for all that tough stuff in the early days so I think we're well past that.

"We know how to manage costs, we know how to reduce costs, and we know how to drive sales."

It's going to take a lot to tame this dragon.

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