Kitchener's Deli - Analyse this!

[Porty]

KITCHENER'S DELICATESSEN 127-129 Portobello High Street EDINBURGH EH15 1AF
£165,000
Ref 13060

About The Business
Kitchener’s Delicatessen and Coffee House is a highly successful business with huge potential situated in the much sought-after area of Portobello, on the East side of Edinburgh, by the Firth of Forth.
Currently owned and run by our clients, the business was established over 16 years ago by Graham Kitchener. With a growth in sales over the past 2 years exceeding all expectations, the business offers continued scope for development and represents an excellent opportunity for the right owner.
Estimated turnover for 2007-2008 is £275,000 with a gross profit of 51%. The passing rent is £12,000pa.

The Premises
Kitchener’s Deli occupies a fantastic location in the heart of Portobello. Converted from 2 separate premises, Kitchener’s Deli includes the Delicatessen, a 15 cover coffee shop/wine bar, fully equipped kitchen/preparation area, a loft (for storage), staff cloakroom (with additional storage for dry goods) and a customer toilet.

The Customer Base
Portobello is quite a distinct and unique community within Edinburgh, with a genuine ‘village-feel’ and Kitchener’s has long been regarded as a central part of this, with a particularly high level of customer affection and support.


The customers appreciate the high standard of friendly, personal service they receive when they visit the shop and the premium quality products on offer. Organic, fair trade and local produce are always popular and considerable effort has been made to tailor the offer to the customer base.

Trading Hours
Monday 8.00am – 7.00pm
Tuesday – Friday 8.00am – 9.00pm (this varies and may be later on busy nights)
Saturday 8.00am - 6.00pm
Sunday 10.00am – 4.00pm

Fixtures & Fittings
All fixtures and fittings on the premises are included in the sale, of which the following items were new in 2007.
CCTV system (£2,000) all 4 camera can be viewed remotely via broadband.
Coffee Machine (£1,500)
Chiller Cabinet (£1,300)
Ventilation System (£1,200)
Patio Furniture (£800)
Drinks Fridge (£300)
In addition the tiled floor was installed in 2007.

Experienced Deli Staff
Included in the sale are a fantastic team of dedicated staff. Kitchner’s operate 6 hour shifts with fulltime staff working a 30 hour week, complemented by 6 part time staff and overseen by the owners. All members of staff have completed basic hygiene training and one is studying towards the REHIS Advanced Level.

Accounts & Production Information
The business has been run using the MYOB accounting package and detailed information is available. In addition, there is a comprehensive product database detailing all products bought and sold since April 3rd 2006, with margin analysis – a vital resource for effective product management. This information, together with a management summary, will be provided to the new owner.

Sales History
In 2005/06 the turnover was £200,000. Since taking over the business 2 years ago, the current owners have delivered almost 40% growth with many areas identified for yet further improvement. Detailed sales and product analysis have helped to achieve a gross profit of 51%. Copies of accounts are available on request.


Ref 13060

Full Drinks License
Awarded in 2006, with an investment of £2,000, this was a particular coup for Kitchener’s and offers considerable scope for sales growth both through on-sales in the Coffee Shop & through off-license trade.

L’Aperitivo Evenings
Kitchener’s has operated and evening wine-bar format from Tuesday to Friday since July 2007, under the ‘L’Aperitivo’ banner. There is certainly potential to fully develop evenings- they haven’t been advertised and only a limited selection of bar snacks are available – opening Saturdays is an obvious opportunity.

Alfresco Kitchener’s
There is a license to use the patio area in front of the shop, renewable annually. Improving the access, possibly by installing full length doors from the Coffee Shop, attaching an awning and/or investing in patio heaters would maximise sales from this very popular seating area. The existing aluminium patio furniture is included in the sale.

Sunday Brunch
Sunday openings started in July 2007 and, despite operating on restricted hours, already account for 10% of the total turnover. With promotion (and not just relying on word-of mouth!) this could be an opportunity for further growth.

www.kitchenersdeli.co.uk
The deli has a web-site and the domain name is included in the sale.

Future Opportunities
Developing the business further will be an exciting part of the new owner’s responsibility but there are several obvious opportunities which include;

1. Outside catering – started as a limited trial in 2007, this has proved to be very popular
2. Web sales – the existing website already attracts a reasonable volume of visitors but has not been used as a sales channel
3. Home deliveries – there have been a number of requests for this service
4. Parties & Functions – having run several, very successful private parties in the deli, there is scope to further promote Kitchener’s for private functions
5. Sandwich deliveries – with an increasing number of businesses located in the local area and the recent relocation of Queen Margaret’s University campus to Musselburgh, lunchtime sandwich deliveries are an obvious extension.


The Next Step:

Viewings/Meetings – 01204 467301 viewings@knightsbridgeplc.com (Strictly by appointment through the offices of Knightsbridge Business Sales PLC.)

Customer Care
customercare@knightsbridgeplc.com

Free Finance Quotation – 01204 467332
finance@knightsbridgeplc.com

[Maria]

[Poppy]

[Maria]

[Maria]

[Poppy]

[Maria]

[bearcub]

[Porty]

[Porty]

[Porty]

[Poppy]

[wangi]

So, purchase cost gets you good will, business name, website, contacts, staff contracts, books/accounting, equipment, ... basically the business as is. Does sound steep indeed, I assume the current owners bought it for a certain figure and want to cover their losses.

[cheesaholic]

Ah, the age old art of speculation - don't you just love it...???

Although I'm a little reluctant to be drawn into the debate, as one half of the current "owners" of Kitchener's Deli I feel the need to put the record straight on a couple of issues...

Why we're selling: 2 reasons really. Firstly - the business has increased in size far more than we expected it to in a very short period of time, and Secondly - other business and family commitments are making it hard for us to spend as much time in the shop as a) we would like and b) our customers deserve. Kath's mum (who lives in Stoke) has been seriously unwell and sometimes you just have to make a decision about where your priorities lie...

Is it profitable?: Graham Kitchener made a living from the deli for 15 years and in the last 2 years turnover has increased by more than 30%. Of course it's profitable. Some of the guesstimates in the discussion are widely inaccurate. For example, the rateable value is actually just over £8,000 but businesses only pay 44p in the pound, so the rates payable are less than £3,500 per year. Heat and light are nothing like £11,000 per year... In the last 2 years we've invested more than £20,000 back into the business - almost every piece of equipment is brand new as well as new floor, new air-conditioning and new alcohol license. We haven't done all that running the business at a loss....

"Most of the light bulbs are out for gawds sake..." - We've deliberately disconnected the halogen lights in the coffee shop at the request of customers who found them too bright. Anyone who visits the shop regularly will see that every light bulb is fully operational - and energy saving in keeping with our ethos...

"It's a shadow of it's former self..." - a healthy shadow then, as turnover is up more than 30% in less than 2 years... We get feedback from customers from the forms in the shop, through our website and through a dedicated telephone line. More than 98% of feedback scores 9 out of 10 or higher for service and overall experience. We're working on the 2%...

"The price of bread has gone up" - As Poppy points out (thanks Poppy) all bread has gone up in price due to a worldwide shortage of wheat. We've actually only passed on a fraction of the increase in prices we've had to face.

"An individual could make a decent £40k - £60k maybe? But to do that they would have to take a huge risk and work bloody hard..." As with anything, you get out pretty much what you put in. We do work hard and we make a decent income. It wasn't much of a risk. Graham Kitchener had built a great business that survived for 15 years (17 now). The shop has a fantastic and loyal customer base. It's a pleasure to work in and we meet wonderful people. It's great fun. We don't work for anyone else. We're lucky to have a great team of staff. We've made some VERY good friends. And yes - it's hard work. Very little that's worthwhile isn't hard work. And hopefully we'll pass it on to someone who will continue to run Kitchener's in the same spirit as Graham created it and we've tried to continue.

We think it's a wonderful business in all respects and we'll be sorry to sell it.

If anyone is GENUINELY interested in buying it, we'll tell you the rough and the smooth, the good and the bad, the ups and the downs. But you might as well get the facts rather than some (pretty poor) speculation.

Hello to all our customers and see you in the shop soon....

[Porty]

[kings roader]

[Porty]

[Lou]

[Porty]

[cheesaholic]

Oh well, in for a penny....

Of course we don't mind speculation, and it's very interesting to hear what people have to say. If some are saying it, others are probably thinking it....

And of course not all the speculation is (pretty) poor. But (and I speak as someone who works with a lot of small businesses) it's almost impossible to determine true profitability without seeing the actual figures, and that's what I would encourage anyone who's thinking of buying ANY business to do.

For example, some of the costs that Porty adds up to make £11k, are actually "cost of sales" and so have already been deducted before calculating the Gross Profit. Most of the other costs are fairly fixed; rent, rates etc and even those that are variable (heat and light) don't vary much even by extending the opening hours. So a 30% increase in turnover can actually add up to a decent increase in profit.

You're right to calculate the opportunity cost of the capital used to buy a business - however it's only "Opportunity" cost if you actually have the capital in the first place. In which case you have to calculate what return you'd get on your money if you were to invest it elsewhere....

In a bank at present on £165,000 you get about 4.5% (let's forget the tax).

We all know the housing market's not great and the "buy to let" market is seriously suffering.

Let's assume that previous estimates are correct and the deli owner could make between £40k and £60k per annum (let's go for middle ground and say £50k). That would be a 30% return on investment which in today's world is pretty good. You would have paid off your initial investment in just over three years.... (Of course I'm neither confirming nor denying the estimates - that would be up to you to speculate on...

If you don't already have the money, then you have to weigh up the return against the cost of capital, and Porty's probably slightly underestimated at 9%, so let's say 11% for capital and interest (over 15 years). In this case the potential return looks different because you have to repay the loan. Let's say you borrow almost half the amount (£80k). At 11% this would cost you £8,800 pa reducing your £50k income to just over £40k. Now it takes you longer to pay off the deli and your retun on investment is slightly lower, but still not bad in todays financial climate.

Add to that of course that you have no risk of redundancy and a great lifestyle...... What's that worth?

Don't get me wrong, I'm not trying to justify the price of the business. As with a house, a business is worth only what someone is prepared to pay for it. However, it's simply not true to say that goodwill and fixed assets are worth nothing - goodwill is what reduces your risk and for a business like Kitchener's that's worth a lot. Fixed assets do depreciate, but of course that also saves you money as you can write the depreciation off against tax. Depreciation on capital equipment is generally over 10 years (the conservative estimate of life span) so the fact that everything is brand new means that the new owner gets a tax benefit without having to make any further capital investment for around 10 years. That's shown on the Balance Sheet, not the Profit and Loss account and it does have an impact on the way the business is valued.

The lease and duration of the lease also have a value - though again without actually seeing the lease it's impossible to calculate the value. If a bank were lending money for the purchase of a business, the lease would be one of the assets that would be taken into consideration.

Kitchener's was independently valued by 3 companies who all came up with slightly different valuations. If anyone out there has a different valuation and wants to offer less (or more..) then of course they're quite entitled to do so. And we'll listen...

We're in no great hurry to sell Kitchener's and want it to go to the right person / people as much as anything. We live in Portobello and like to think that if and when we do sell the business, we'll be among it's best customers.....

Hope to see you all in the shop soon - we have some great new, tasty products on the shelves and all the lights are on...

[Porty]

You are a sport sir, excellent response. I will mull it over and come back to you.

[Porty]

[cheesaholic]

[cheesaholic]

[Porty]

[cheesaholic]

[Porty]

[wangi]

I see this thread has been "noticed": http://edinburghnews.scotsman.com/edinb ... 3735150.jp

I'd say "slow news day", but sadly this the norm for the EN these days!

[Porty]

[Porty]

[cheesaholic]

[Porty]

[Porty]

[cheesaholic]

[Porty]