Sunday 22 September 2019

'For the younger workforce that is ticking a lot of boxes' - Java eyes European adventure after takeover

Grace O'Shaughnessy. Photo: Arthur Carron
Grace O'Shaughnessy. Photo: Arthur Carron
Ellie Donnelly

Ellie Donnelly

On a walk around Java Republic's huge coffee roastery and headquarters in North Dublin managing director Grace O'Shaughnessy greets each staff member by name, and there is an easy informality to the interactions.

It feels apt that this year's takeover of the Irish business was by a family firm, Spain's Cafento.

The Spanish coffee company bought the Irish coffee roaster and distributor in a deal reckoned to be worth around €30m.

The Irish management team, led by O'Shaughnessy and Jeffrey Long, are staying in place, while Cafento intends to oversee Java Republic's domestic and international expansion.

Given the times we live in, Brexit quickly raises its head is our discussion, which naturally occurs over coffee.

For Java Republic's, whose customers include Aer Lingus, the direct Brexit impact will be minimal.

"In terms of our supply it's mainly coming from Europe, but then the UK is used as a land-bridge," Ms O'Shaughnessy says. "But it's the indirect impact that we are looking at."

Right now the main problem for the group is finding warehouse space to hold stock, something she says is difficult to come by in Dublin.

"That's the problem where our suppliers then have to hold more for us, it's an increase in stock-holding, which has an impact on tying up cash flow in a growing business, they are the items we are preparing for, and I don't see that going away as it comes nearer October."

The other big impact of Brexit is having right now is the management time that has to be spent grappling with potential hard deal scenarios - time Ms O'Shaughnessy says they'd rather spend growing the business. It can't be helped.

"The fallout is too severe to leave it until the 11th hour."

However, a hard Brexit may also bring opportunities for the group especially if it makes life harder for their UK based rivals.

"If the World Trade Organisation get involved and they issue tariffs on coffee, which is our bread and butter, we will see opportunity in retail in Ireland because UK players will not be able to supply in here as margins are just too tight. So that is where there is an opportunity, but for us our supply line is key," she says.

Ms O'Shaughnessy, who originally studied food science and horticulture, is no stranger when it comes to facing up to difficulties.

Having joined the company from Lir Chocolates in 2006, within two years Java Republic founder David McKernan, had asked her to consider taking on the managing director role.

The group had just borrowed to fund a major €7m development on 2.1 acres to build a coffee roaster.

The global financial crash of 2007-2008 and its impact on Ireland has been well documented.

For Java Republic, facing into a downturn with a big debt the stakes were massive.

"We did some cost cutting, restructured our finance, and tightened our belts really to drive through it," Ms O'Shaughnessy says.

"The market was very difficult, people stopped drinking coffee, people stopped investing in equipment, and for 2008-2010 we were quite flat, in fact in 2010 we took a bit of a nose dive in terms of sales, but it was pure focus, restructure, new finance director to the team."

Today the business is profitable and in 2017, profits came to €409,000, according to the last set of accounts filed by the group.

Part of what got them through the crisis was a willingness to seek help, Ms O'Shaughnessy says.

"We weren't shy in asking for advice.

"I think sometimes, the Irish by our nature we are very proud people, and it can be seen to show a weakness in asking for advice, but we reached out to counterparts, to our external team of advisers for help.

"Sometimes having a fresh pair of eyes to give some perspective is a great learning [experience], and I don't think enough business, especially in the SME sector has that mentor or advisory piece."

By 2010-11 the group had been through the worst of it and "we started to see growth shine again".

"From 2011 onwards we have had great growth," she adds.

It's clear from talking to Ms O'Shaughnessy that the difficult learning experience has remained with her, and she appreciates that a business can't be all things to all people.

"Like any SME driven by an entrepreneur you want to do all and be all, but sometimes it is important to stop doing some things as well and to stop chasing things where the return might not be there or the win might not be that big," Ms O'Shaughnessy says.

Despite the pressure on the business during the turbulent times, Java Republic never cheapened the quality of its ingredients, something she says would have made the business "all about price and that's not what the market is looking for as we move forward".

"We have just come out of our most successful year in our 20-year history and we look to report the same strong numbers for 2019 as we near the end of the year," she adds.

While it is committed to giving back to its growers, Fair Trade - a partnership set up in the 1960s designed to help disadvantaged farmers and workers in the developing world - does not make up 100pc of Java Republic's portfolio.

Instead, the group has another umbrella called Coffee with a Conscience, which allows it to trade directly with growers and co-ops, "and actually have that direct relationship".

"It is one we developed ourselves over the years to compliment what fair trade does," Ms O'Shaughnessy said.

"In our experience to be able to go to a client and talk authentically about what we do in the local communities we work for, that's really important, and that stands sometimes with a lot more credibility that possibly an affiliation with Fair Trade or another," she adds.

Looking forward, Ms O'Shaughnessy says the sale to Cafento presents a number of opportunities for the group, not least its expansion into the Spanish market.

"While the market would have been perceived over the years as a place where you could get a coffee for €1 or €1.20 it is starting to change, you are seeing, especially in Madrid and Barcelona, there is a want to have a premium offer," she says.

On the back of this, Java Republic has identified a site where it will open the first Java Republic flagship store in Madrid, a city that has a population of around five million.

"We are currently doing the market research in the area and are also in the middle of hiring customer service and marketing personnel that would be based out of the Irish team [in Dublin], the reason for that is we don't want to lose the DNA of Java Republic."

From there the group will look to break into France, then Britain once it has "a bit more clarity" in terms of what is happening in the UK.

In addition, Java Republic is looking to launch an Erasmus scheme next year, which will provide an opportunity for its Spanish counterparts to come to Dublin and see how Java Republic operates, and similarly members of the Irish team have the chance to spend time in Spain learning from their colleagues there.

"For the younger workforce that is really ticking a lot of boxes," Ms O'Shaughnessy says.

To date, she maintains there has been no culture shock arising from the takeover.

"I think [it's] because they are family run as well.

"What has been really refreshing is that they are very respectful of what we have done here, we didn't want to see the business stripped away of all the good we have done and they believed in that," Ms O'Shaughnessy says, adding that synergy between the two groups "will come in time".

Domestically for Java Republic, it's business as usual.

In the corporate market the group is viewing the increasing number of firms relocating to Dublin on the back of Brexit concerns as an opportunity to increase its presences in the office space.

"We have seen great growth here, not just in Dublin, but in the regional cities as well," she says.

"We are also growing in the hotel sector, one of our most recent wins has been the Radisson Hotel Group in Ireland."

Establishing a hold on the café and restaurant business is tough, Ms O'Shaughnessy admits.

"At times there is a lot of competition and that's not going to go away, we are not seeing a lot of places closing, but we are seeing a lot of consolidation and we are finding that it's a smaller channel, but one that we play in, not so much in the independent [café] but with businesses that have one, two or three cafés.

"It's a broad spread and we have never had our eggs in just one basket."

The food and beverage business in Ireland is facing into a period of unknowns, and without doubt it faces its challenges. In addition, it consistently operates in "a very competitive landscape".

However, Java Republic has seen difficult times before, and as Ms O'Shaughnessy eloquently puts it, "when you are representing a product and a team that do very well, and love what they do I think it makes the journey easier".

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