Starting with one shop selling meat pies, Phil Duxbury has built a business with 77 branches across the UK and a turnover of £270 million.
The idea was a success from the start and growth has been rapid despite fierce competition from other food outlets such as the West Cornwall Pasty Company.
Much of The Pie Shop’s growth has been financed by bank loans, although, on occasions, its rapid growth has led to cash flow problems.
Phil developed a simple but distinctive business model. The shops are sited in busy shopping locations and are identically and expensively furnished.
The aim is for a quality image but this has resulted in high overheads. However, the company uses this quality image as a unique selling point (USP). The company’s pies are made from the best local ingredients and sell at premium prices.
The branch managers decide on the range of pies to be sold and these vary according to the season and the availability of ingredients.
All of the pies are made and cooked in the shop in which they are sold.
The Pie Shop spends heavily on marketing to emphasise its quality product.
It also presents itself as supplier-friendly and pays its suppliers within five working days of delivery.
The company’s most profitable branch is near Hyde Park in London.
The fixed costs at this branch are the highest – £1 560 000 per year in 2007.
In a typical month, the Hyde Park branch attracts
40,000 customers who spend an average of £8.75 each.
The variable costs of supplying each customer are £4.25.
The Directors of The Pie Shop plan further growth and this has generated other changes.
The Board of Directors decided that from December 2009 each branch would operate as a separate profit centre and control its own budgets.
Some branch managers were opposed to this decision, despite the company investing £850 000 in a training programme.
Assess whether The Pie Shop plc should increase its bank loans if it is faced with future cash flow problems. [10]
