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F E A T U R E S E N T E R P R I S E

FOOD RETAILING

Sandwich manhas an appetitefor spreadingNiall MacArthur, the founder of Eat, tells Caroline Phillips about hisambitions to expand his 26-strong chain beyond its base in London

Seven years ago NiallMacArthur, manag≤ing director of Eat,was working i n a

sandwich bar. Now he wantsa bigger slice of the marketdominated in the UK by Preta Manger. And while Pretreported a £20m annual losslast year after stumbling inits efforts to grow overseas,Mr MacArthur has justraised £8m of bank debt tofinance the Eat chain’sexpansion.

The Eat chain employs 450people, has 26 shops ∞ justone outside London, in Bir≤mingham’s Bullring develop≤ment ∞ and will generaterevenue this financial yearof about £23m. Like-for-likesales for November were up15 per cent year on year,says Mr MacArthur. Eat isexpanding at the rate of oneshop a month, with the aimof adding 25 in two years.

At Eat in Regent Street,

the surroundings are simpleand modern with lots ofwood, tiles and comfortablebenches. People are orderingsoup, pies, sushi, salads andsandwiches from 12 varietiesof bread. Does he offer any≤thing for the Atkins diet?“No!” groans Mr MacArthur.“We offer delicious, fresh,healthy food, not fads.”

He looks exhausted. Hisobjectives in the past yearwere to hire a world-classretail director (he appointedColin Hughes, formerly atPret and Marks and Spen≤cer), build a property pipe≤line (he has 15 shops at vari≤ous stages of negotiation forhis expansion plan), raisedebt to pay for it all (hencethe £8m) and open his firstbranch outside London.

Mr MacArthur is responsi≤ble for property acquisition,and obtaining the right sitesagainst stiff competition iscritical to the company’s

success. “The property mar≤ket has cooled significantlyover the last year and I’dexpect this to continue as ittends to lag the stock mar≤ket,” says Eat’s 44-year-oldfounder. “This makes siteacquisition easier, plus t hestrength and success of thebrand increasingly attractslandlords to us.

“Birmingham answered allour questions about our abil≤ity to trade outside London.‘Will the brand be recog≤nised? Are the price pointsOK? Can we recruit andtrain staff from here? Canwe manage a store and sup≤ply the food from here?’ Theanswer is Yes. Now we’re setto infill Manchester to Lon≤don with Eat.”

Mr MacArthur, son of IanMacArthur, a former vice-chairman of the ScottishConservative party, hailsfrom Perthshire. He readEnglish at Cambridge, wherehe dismissed the notion of acorporate career. He decidedto start his own business.“But the last quantitativework I’d done was mathsO-level.”

He took an MBA at CityUniversity Business School,then became an investmentbanker at Bankers Trust ∞“an interesting diversionthat lasted 13 years”. Duringthis period he met Faith, hisCanadian wife c um designguru, chef, co-founder andbrand director of Eat. At thetime she was designing jew≤ellery in Los Angeles.

At 36, he left BankersTrust and went travelling,ending up in a coffee shop inVancouver where the ideafor Eat was born. “It struckme that this was a businesswe hadn’t yet seen in the UK

which was highly branded,quality-led and service-led,”he says. “Somebody told me97 per cent of new cateringcompanies fail within a yearand I thought, ‘Yes! This iswhat I want to do!’ ”

Starting the company in atotally unknown market wastough. He and Faith spentsix months researching theconcept and competition.“We were recruiting for ashop that didn’t exist and foran unbuilt kitchen, creatinga brand from scratch, devel≤oping our product range andpackaging and coming upwith a shop design to sup≤port our core brand values.”

Their sector is vibrant ∞sandwiches are the fastest-growing part of the fast-foodmarket and sales in Britainthis year are forecast byMintel to exceed £3.5bn.Eat’s main competition isPret (with 132 stores) andthe less expensive Benjy’s,

which is attempting to moveupmarket. When Eat startedout, Pret enjoyed a quasi-monopolistic position. To dif≤ferentiate itself, Eat decidedto use a central kitchen,rather than preparing all thefood in the individual stores.

“The best place to root abrand distinction is in theproduct itself. We chose toprovide our own fresh, hand-made food, made by us inour own kitchen every dayand delivered to our storeswith a one-day shelf life,”says Mr MacArthur. “As aresult of this brand decision,we had to build a large, cen≤tral kitchen to prepare ourfood ∞ which gave us ourbusiness model. The firstkitchen we built could ser≤vice eight shops. So we had acritical-mass model. We werealways working to a gruel≤ling schedule of shop open≤ings to cover our huge fixedcentral cost.”

The MacArthurs investeda lot of their own money,built a kitchen in a derelictwarehouse in south Londonand got going quickly: thecompany was incorporatedin June 1996; the first shopopened in Villiers Street,London, on October 12.

By the time the fifth shopopened in 1998, Eat was onthe map. It had been namedSandwich Bar of the Yearand then Sandwich BarChain of the Year. In 1999 3i,the venture capital group ,put up £5m in exchange

for a 44 per cent stake.“It was a wrench to part

with a stake in the company.But it gave us the criticalmass and cash flow to raisedebt from banks, back theroll-out expansion and moveto a bigger kitchen in Wem≤bley with a capacity toaccommodate 50-plus shops,”says Mr MacArthur. Now,once again, he has to findthe stores for his enlargedcentral kitchen to service.

He will not be drawn onwhether he faces increasedcompetition as Pret reduce s

its overseas expansion andconcentrates more on theUK, although Pret’s wobblehas probably provided Eatwith an opportunity to estab≤lish itself and grow.

“I’m keen on expansionand diversifying our storeportfolio, to make us lessvulnerable to any concentra≤tion of exposure, whether tooffice workers, shoppers,tourists or geography,” hesays. “Inside a couple ofyears we’ll have 50 shopsemploying 1,000 people and

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turning over £45m.”

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The cup that cheers: Niall MacArthur has bold plans to expand the Eat chain of sandwich shops that he founded with his wife Faith Charlie Bibby

CHAIN CAREFULLY CONTROLS ITS INGREDIENTSNiall MacArthur says the growth ofEat has relied on a combination offactors including brand vision,emphasis on quality, great peopleand keen cost control.Y He decided that Eat coulddifferentiate itself mosteffectively by building a centralkitchen to supply its outletswith food to be sold that day,rather than making it at eachsite.Y This allows additions andchanges to the range to be madequickly and uniformly. Some 50new products hit the shelves lastyear.Y He says he has had to berealistic about the costs to deliverthis and to raise enough money to

invest in the brand, product,premises and people. Findingenough good properties to be usedas outlets served by his centralkitchen is critical.Y Success depends on thepeople. Underhiring is a seriousproblem in a small, growingcompany.Y Having said that, themanagement team is kept small, toprotect against a downturn. Costsare tightly controlled throughoutthe company. Prices aredeliberately competitive andgeared to subsistence rather thandiscretionary expenditure. Eatgenerates revenue by attractingcustomers, not by increasingmargins.