by Real Business - Thursday, 30th August 2007

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It's Saturday in Soho. And it's raining.

Deep in the heart of London's West End, a stone's throw from the capital's strip clubs and sex bars, a large crane is parked.

Today is the only day that Westminster City Council will allow it to be there. And without it, Bryan Meehan cannot open his newest store.

In less than a month from this November day, Meehan is due to open the Soho branch of Fresh & Wild, the country's biggest independent organic food group of which he is chief executive. Right now the place looks like a building site.

Meehan's new store, which runs over two floors, will sell fresh organic produce and groceries. There is to be a take-away and eat-in food counter selling hot meals, snacks and salads. The shop will have a natural remedies section selling vitamins, food supplements and aromatherapy oils. And a coffee bar and a juice bar selling wheatgrass shots, purple hazes, monkey shakes and any other juice combination you can think up.

All this will cost Meehan and his shareholders some £750,000 to £1m. That doesn't include the tens of thousands of pounds-worth of products that must be on the shelves on day one, nor the rent for his 4,000 sq ft selling space - likely to be around £500,000 a year.

But why the crane? Well, when you are selling fresh food, you need a lot of fridges. And with a lot of fridges come a lot of compressors that get rid of the heat created in keeping things cool; these need to be stored outside.

And when you're the anchor tenant in a central London building that is 13 floors high, getting your compressors to the roof presents a series of problems. Even Harvard, the prestigious US university where 33-year-old Meehan, a former Guinness brand manager, did his MBA, didn't teach him about this sort of stuff.
"We had to get four of these compressors up to the roof," explains Meehan. "To do that we had to hire a crane. To do that we had to get permission from the council and Westminster Council would only allow us to do it on a certain Saturday in November. We put up scaffolding inside the building in a shaft that lead to the roof and had people scrabbling up it all day to help guide the compressors on their way up.
"There were a hundred things like that that happened. Stuff you'd never imagine until you're doing it."
Three days later, on a Tuesday afternoon, as Soho residents saunter around the newest organic shop to hit London, it's hard to spot any tell-tale signs of builders. Not a dusty ledge in sight. Instead gleaming green lettuce leaves, chicory, broccoli balanced on a bed of ice, fresh bread and cheeses. The juice bar manager, who is busy explaining to her assistant why she should polish the cutlery, not just leave it to dry - that means limescale stains - has even found the time to pop fresh flowers in tiny glass vases round the drinks counter.

Meanwhile, several hundred feet above, four unremarkable-looking compressor units whirr quietly away.

The organic marketplace
Fresh & Wild is the UK's first serious independent organic retailer. It has five outlets with a sixth due to open in April this year. Sales to March 2001 should be around £8m, compared with £5m to last March.

The business was founded in 1998 by chairman Hass Hassan.Originally from Kashmir, Hassan lived in the UK until his early twenties, then moved to the US where he spent the next 20 years building his own organic business, Alfalfa's, based in Boulder, Colorado.

Hassan brings money and experience to a sector that has, until now, been highly fragmented and, let's be honest, full of worthy-but-dull, musty shops selling endless varieties of unappetising and unidentifiable beans.

The top line figures on the growth of the organic food market are impressive - and not just in the last couple of years. According to the latest analysis by Mintel, the market research firm, organic food sales have increased four-fold since 1994, reaching £554m in 1999.

Estimates for last year put growth at around 40 per cent, equivalent to sales of £770m. This represents about 1.5 per cent of the country's in-home food expenditure. For the supermarkets in particular, organic food has been a vibrant element in an otherwise stagnant market. Food scares - eggs, beef and, most recently, the arrival of genetic modification - have had shoppers wondering about all the things that have been "done" to the healthy-looking bag of tomatoes they are about to drop into their shopping trolley.

But while Mintel's overall market figures suggest a buoyant market for organic products, it's the supermarkets and not the specialists who have capitalised on it. So far.

Between 1996 and 1999, the supermarkets' share of organic food sales increased from 60 per cent to 71 per cent. Over the same period, independents including wholefood shops, saw their share rise in real terms from £24m to £55m, but fall in percentage terms from 12 to ten per cent.

Why? One reason for the failure of independents to capitalise on consumer demand is the highly fragmented nature of the industry. Most wholefood stores are one-offs run by enthusiasts. Often they lack the professionalism of mainstream food retailers and, even if they wanted to improve or expand, they have no access to investment to upgrade their offer. But that situation may be changing. Planet Organic, the London business started in 1995, has the highest media profile of all the independents.Last year it finally found sufficient investment to open its second store just off the Tottenham Court Road.

Elsewhere in the capital, private bacers funded the launch of Sundance, a new organic business in Chelsea; and Here, another new venture a mile or so up the road in Fulham.

Meanwhile Malcolm Walker, founder and chairman of Iceland Frozen Foods, was revealed to have put some of his own money into a Chiswick-based business called (rather whimsically) As Nature Intended. Given his reputation as a fearsome boss and skilful retailer, it's hard to imagine Walker sitting on the sidelines for long.

Something is definitely going on in the organic patch.

The concept
At this stage, Fresh & Wild is way ahead of the pack. But what precisely is Hassan's pitch? What's the thinking that makes him believe he can enter one of the most competitive businesses in Britain and win? "There is a huge demand for organic food in the UK," he says. "And while supermarkets here are supplying organic products, no-one is doing it in the way that we think it can be done.

By this, he means mainstream organic shops situated in the heart of communities - stores where, if you can afford it, you really could do your weekly shop. His is neither the Holland and Barrett plastic-packed lentils view of life nor the supermarket approach - selling organic products in non-high street locations.

Every Fresh & Wild store is split into four sections: grocery, produce, natural remedies and a food service counter and juice bar. Each section has its own manager; staff at this level and upwards are awarded shares in the business.

All fruit and vegetables are organically grown, which means no synthetic chemicals have been used in any part of the process from growth to harvesting and packaging, and all are certified by the Soil Association. Of the rest of the goods on sale, some are organic, some not depending on availability. "Ours are community organic food stores, shops that are about healthy, organic foods," he says. "I grew up in an era when the high street was very strong here, when you had a local baker, butcher and grocer who'd know you. We try to create an environment where customers feel they can get the information and service they want when they want it."
The classic Fresh & Wild customer is aged around 30-40, well educated, well-travelled and well off. Around 65 per cent of customers are women. A significant chunk of those are women with babies who are looking to buy organic baby foods.

Prices are certainly higher than in Sainsbury's. Like-for-like comparisons are difficult, but some products may be 20, 30 even 40 per cent more expensive. Hassan's thinking is that people will pay more because the quality of his produce is better, his shops are convenient and because they are staffed by friendly people who know something about what they are selling.

Enter property problems. Sites that fit the bill are expensive and hard to find, especially in London.
"Our brief is for 4,000-10,000 sq ft locations," says Geoff Phillips of Morgan Williams, Fresh & Wild's property agent. "That's a challenge in London, especially when you also need adequate room for deliveries. We're up against pub and restaurant groups and in-town retailers like Sainsbury's Local and Europa. Once you've found a location, you've then got to convince the landlord he wants to let it to you rather than a big-name retailer."
Take Fresh & Wild's Clapham store, for example. The site was originally an amalgamation of four run-down shops. At the bidding stage, Meehan and his team faced stiff competition from an established leisure retailer with a longer track record and a well capitalised quoted parent behind it.
"The thing that finally swung it in our favour was an article that appeared in The Times saying we'd raised £10.5m of investment to expand the business, just at the moment the landlord was making his decision," says Meehan. "He saw the piece and decided to go with us."
Despite the scarcity and cost of good locations, Hassan believes he can eventually have a dozen stores in London. After the April Stoke Newington opening, however, he wants a period of consolidation to "make sure it all runs well."
"We don't have a set plan of 50 stores in a certain number of years. More, it's that we think there's a good opportunity to grow. We want to put as many stores in London as we can, then go outside London - Brighton, Bristol, Oxford, Cambridge. And if we can find a large location, I'd love to do a larger store, more on a supermarket scale."

Suppliers
Fresh & Wild is committed, where possible, to sourcing organic products from local artisan suppliers and keeping the miles that food travels to get to the shops as low as possible. But sometimes products aren't available in the UK. Compared with other European countries, the UK uses only a tiny percentage of its agricultural land - about 1.3 per cent in 1999 - for organic growing, compared with ten per cent in Austria and Sweden.

And on top of that come the purely practical difficulties of dealing with 200-300 artisan suppliers as opposed to wholesalers delivering a range of products in one van. Fresh & Wild has approximately 9,000 product lines in each store, says commercial director Margreet Westerhuis. Of these, about half are UK-derived. That compares with around 30 per cent for the supermarkets. "Organics has been slower in the UK than in countries like Holland and Germany, but the rate of increase here is greater now," she says.
"We desperately want to support small-scale companies. Our philosophy is to provide healthy choices; so our bread is traditionally baked, has low 'food miles' and we offer recipes that are different from what you find in supermarkets. But at the same time we also sell bog-standard sliced loaves."
In Fresh & Wild stores there are poster-sized photographs of local growers on their farms and in their orchards that emphasise the inter-dependence of shop and producer and reveal a whole world of other businesses. Behind this one shopfront, lie a myriad other stories.

There is Christopher Maguire, the wheatgrass man who started out in a shed in his garden and now produces around 500 trays of wheatgrass a week on his farm in Sussex. Three times a week Maguire's delivery van leaves his Sussex farm at 2.30am heading for Guildford, then on to London where Fresh & Wild is now his biggest customer.

There is Robbie Crone who grows apples and makes juice and cider in Norfolk and delivers his goods to the stores himself each week. Crone makes between 500-1,000 bottles of juice a year.
"We're small scale and hand-made," he says. "Wholesalers aren't interested in people like me because we have a constantly changing range from our six orchards and a few small holdings that feed into us. But Fresh & Wild are flexible enough for it to work."
There's Toos Jenkens of Laine's Organic Farm who supplies leeks; Flour Power that makes bread, Fundamentally Fungus the mushroom specialist, Monmouth Coffee that sources beans from Ethiopia, Brazil and Nicaragua. The list goes on.

But, says Hassan, the standard of products and service offered by many suppliers is middling.
"In the US you've got all these suppliers who are very sophisticated and do a good job providing you with product and information. Some would send their people for free for three or four days when we were opening a new store to help out. They'd also often give us a free fill," he says. A "free fill" is where the supplier would supply his first batch of product at no cost as an investment in the new venture.
"I'd say to our suppliers, I'm investing $2m every time I do this and you're getting all the benefit at no cost. A free fill is your investment. When I suggested the same thing to suppliers here, they said; 'Huh? Wot'?" Not surprisingly, Hassan has also had to educate some of his suppliers that operating a seven-day-a-week food store requires seven-day-a-week suppliers. "We had this bakery company that told us there would be no bread on Sundays or Mondays because they only worked a five-day week. I suggested they hired more people and broke the week up into two five-day shifts so they could work weekends. 'Oh, no,' they said. 'We can't do that.' So we found another baker."
Then there was the company that announced it would be closing down between December 23 and January 2. When he asked what all its other customers did, he was told: "They have empty shelves."
"I can't tell you how many times I've been told: 'We don't do that here'.Whether it was to do with paint colours or giving stock options to staff, people just said, 'We don't do that here'. It happened so often, I developed this stock reply: 'I know you don't do that here. If I wanted to do exactly what you're doing, I wouldn't bother, it's already being done. The whole idea is to do something different'."
"Things are changing here, but boy, it's got a long way to go."

The future
Fresh & Wild is set to break even this spring. In the US, the best net margins in the business are around five per cent. Hassan is aiming for that. But, he admits, "You've got to have a really well run operation to get that."
Mind you, compared with the 1.5 per cent margins of traditional US retailing, it's not hard to see why investors like the idea, as well as feeling they just, well, like the idea of investing in this kind of business.

As well as more stores in London and in major urban centres, Meehan is interested in developing Fresh & Wild branded products to sell to other retailers. This makes sense: in December Fresh & Wild paid a hefty sum to open a central kitchen and warehouse facility in King's Cross to keep control over the quality and variety of the hot and cold takeaway and eat-in foods on offer in stores.
"Every retailer says 'don't try and run your own kitchen, focus on what you do well which is retailing'," he says. "But fresh and hot food is part of the Fresh & Wild concept and we couldn't source that from anyone else. So we decided to do it ourselves."
So far, Hassan and Meehan have raised £10.5m for the business from around 35 shareholders, five of whom have provided 80 per cent of the capital. "Could we get acquired?" wonders Meehan. "Could we float? We could. But we haven't said we're going to. Five years is the timescale investors are working on and that's three and a half years from now. This year we'll be consolidating what we have and making sure it really works well. After that we'll do two stores a year."
As far as Hassan is concerned, if Fresh & Wild is to emerge as the dominant, successful brand in the market for organic food retailing in Britain, there is no time to lose.
"My belief is that the opportunity is now," he says. "It's not five or ten years down the road. That's why we've invested as heavily as we have in the business. If we don't do it, someone else will."

A long labour

1975 - Hass Hassan opens Rainbow Grocery in downtown Denver.

1977 - Sells Rainbow to another organic operator. Hassan and business partner Mark Retzloff open "one-stop natural foods store" in Boulder, Colorado. The pair develop the chain, Alfalfa's, into second-largest natural food retailer in the US, with $100m of sales and 11 stores in the US and Canada.

1996 - Sells Alfalfa's to rival Wild Oats, creating a $200m, 32-store combined group.

1996 - Resigns as president of Wild Oats. "I'd been running the business for 20 years and decided that was enough," says Hassan. "I didn't want to run a large company any more. My enthusiasm is for the concept, for creating something, not for running it. And running it was not my greatest skill."

1998 - Starts hunting the UK for an acquisition. Meets Steve Mosbacher, owner of a single store (called Wild Oats) in London's Notting Hill. No deal.

Meets Peter Bradford, owner of his own organic store, Freshlands. Bradford doesn't want to sell, but was keen to become part of a larger organisation.

End-1998 - Buys Freshlands in return for shares in the group. Persuades Mosbacher to sell.

Spring 1999 - Opens first new store in Camden. Announces ambitious plans to open 20 superstores in and around London in five years. Hires Bryan Meehan, fresh from Harvard.

March 1999 - Here's Health magazine poll finds that 86 per cent of consumers would change to a supermarket that banned all GM food.

June 1999 - Pays branding company $20,000 to come up with a new name for the combined group. "In the end we came up with the name ourselves."

New store openings in Clapham and Soho. Investment in central kitchen and warehouse facility in King's Cross. Stoke Newington store due to open in April.

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