The Harris Farm brothers are looking to turbocharge growth

http://www.afr.com/companies/retail/harris-farm-brothers-look-outside-the-family-to-turbocharge-growth-20210603-p57xo6

It was the day in 2013 they were told who would succeed David. The then 65-year-old was stepping down to give his sons the chance he had in his 40s – to build a business.

“I remember they [Cathy and David] called us all into an office… And I was sitting there thinking: ‘It’s going to be me’,” says Angus. “As we all were. And then they dropped the bomb we were all going to be co-CEOs.”

“When we became co-CEOs, it was a really, really rough patch,” Tristan agrees.

The three brothers had endured tough times before, each having joined the business at different stages, despite their mother’s best efforts to keep them out of it.

Luke was the first of the three brothers to join the family business, back in 1995, when it was just five stores and the family had, with the help of numerous backers, bought it out of administration in 1991. He started in the business after his grandfather died, leaving university mid-degree and never going back.

His early jobs, he recalls, included driving produce in a ute between different stores to deal with supply issues (his grandfather did it in a Rolls-Royce) and banking cheques at the Martin Place bank branch at 5pm on Fridays. The branch stayed open later than any other, meaning that cheques wouldn’t be paid from the Harris Farm accounts before Monday and giving the business a couple of extra trading days to bolster their cash balances.

By 2003, when Angus left investment bank JPMorgan for the fruit markets, Luke was retail manager and there were eight stores, of which fruit and vegetable sales made up about 80 per cent of revenue. But they had begun building out specialist grocery categories, making sure that they had a wide selection of whatever they focused on.

“It was category by category. First, we’d introduce yoghurt and then, cheese,” Angus says.

By now, Harris Farm was back on a far more stable financial footing, though Angus – who came in as chief information officer then became chief financial officer – recalls his father didn’t think about consolidated revenues or profits, instead working on a store-by-store basis.

Three years later, Tristan, who had been running his own retail concept which foundered, wanted in but, like Angus, was initially told there wasn’t a job for him.

After three months negotiating with his parents, he finally got an offer as grocery buyer – he could join the business, at half his previous salary, and would be reporting to his younger brothers. He took the job.

At that stage, groceries were 25 per cent of sales, and this was the first time Harris Farm had a dedicated buyer for non-fruit and vegetables. Now, the groceries business represents over 50 per cent of sales.

As the three brothers bedded down their roles within the family business, it borrowed so that by 2011, it had bought out all the other shareholders (excluding Edgecliff, a store in Sydney’s east) and was wholly family-owned. It might not have been easy, but it was all moving in the right direction.

And so, while the joint-CEO decision was a major curveball, it was one the brothers knew they could work through to find a way to reset the business together.

“It took work, a lot of work, to be able to work together effectively. An inordinate amount of time just working out how to make the relationship work,” Tristan says, adding that they continue to rely on external coaching.

And each was acutely aware they needed to get this right for the business, but also for the family. It helped as well, says Luke that “we’ve been sorting each other out since we were the age of six”.

But ultimately, what could have broken the brothers and the business is what they now see as the key to their success.

In 2020, the average retail basket was $42.22 compared to $32.48 in 2018. And while new store profitability used to take three years, it’s now a matter of weeks.

“When we get it right, it’s impossible to crack. Because of our similar background, we have a similar view on where we should go… when we align and sort all the niggles out, there is no way for anyone in the company to get around it.” Tristan says.

“That’s kind of been the success of the last eight years, we’ve been able to move the business into the way we thought the business should look.”

So their best moment – the moment they knew the three of them had got it right – was opening the Drummoyne store in Sydney’s inner west in 2015, the first chance to go all-out with the new look and feel.

The brothers’ strategy was to gradually replace their older-style stores with ones more like Drummoyne – stores that had retail as an experience, offered speciality producers a chance to operate within their stores as concessions and continued to range more and more products beyond fruit and veg.

That meant closing some older stores, and opening new ones. Eight years on, they are keen to point out that while they’ve opened 11 stores in eight years, they’ve also closed seven in the same period, and refurbished another nine.

Cathy and David Harris, photographed in 2014, still own most of the shares. Christopher Pearce

The new stores look different, and the ranging is, too. Average shopper basket sizes are up. In 2020, the average retail basket was $42.22 compared to $32.48 in 2018, numbers that aren’t adjusted for inflation. And while new store profitability used to take three years, it’s now a matter of weeks.

And the different focus means the business is starting to compete directly with Woolworths and Coles for sites, though the brothers won’t say more than that.

They haven’t thrown out all the legacy ways. For one, Harris Farm is still all about relationships. The 10 buyers source from the markets as well as directly from growers, and unlike the big supermarket chains, when they buy from growers, they do so based on the weekly market price.

“There’s two things we need from the direct grower. One is they need to be top of the game, and two, they’ve got to be the type of people who deal well with us. We have our own style… and some have just been serving chain stores all their life,” Tristan says, adding that they tend to work off market price week by week, which relies on trust.

“When there’s not much around, they’re not going to take us to the top of the market, and when there’s too much around we’re not going to take them right down to the bottom.”

Specials are set daily, often store by store. (Each store has its own tastes. Mosman, on Sydney’s lower north shore, loves avocados, and Brisbane, ladyfinger bananas. The regions are big on mandarins and potatoes.)

They’ve recently opened a second warehouse in Queensland, which has required a tweak of the systems, but has also opened up the market in the state. And if they see something good – whether a trend from offshore, a new product or a new concept idea – they jump on it. Recently, that’s meant a fill-your-own-bottle station for single herd Jersey milk or introducing their own garlic bread, part of their nascent waste initiative because it allows them to reuse older bread.

We have literally invested everything back into the business from ’91 until now and grown it to where it was, so we think it’s time to investigate [the options].

Angus Harris

(It’s how they’ve always worked. The decision to expand into the NSW regional areas with the first store in Orange in 2003 followed a family board meeting where it had been decided that they would remain focused on the urban areas. But three weeks later, the family was approached with a great site. The man who suggested the site didn’t want a finder’s fee, but thought his son might be a good fit for the greengrocer. He ended up as manager.)

They call it business with family values. (Another way they like to operate is making sure they really are part of the local area – they employ local media relations people in the regions and typically sponsor some local sports.)

And that’s another part of the reason they are confident about the growth plan.

“It’s going to be awesome,” Angus says.

The brothers are keen to emphasise everything is on the table – a partnership with private equity, a partial sale, a listing or even a debt deal. Primarily, they want to find a partner with the same values and one that will continue with their growth plans.

“Mum and Dad have spent their whole life with everything on the line and lost it before… We have literally invested everything back into the business from ’91 until now and grown it to where it was, so we think it’s time to investigate [the options],” Angus says.

Whatever happens, it will ultimately be a family decision, although Cathy and David own the bulk of the shares.

“Whatever the decision, the most important thing is we still all have a great time when we head up to the farm together,” Angus says.

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