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Oliver’s real food has had a volatile first couple of months on the ASX. While the share price initially soared to a high of 39 cents, market sentiment cooled when the company announced at the end of July that they would narrowly miss their FY17 earnings and revenue projections. Although missing prospectus projections is never a great look, Oliver’s management stated that this was mainly due to delays in opening new locations and one-off costs rather than lower sales, and have re-committed to meeting their FY18 forecast of $41.9M revenue and 2.37M NPAT. At time of writing the share price is in the mid-twenties, still comfortably above the initial listing price, and Oliver’s have continued to provide market updates on the roll out of their new stores.
After such a dynamic first few months as a publicly listed company, I reached out to Oliver’s founder Jason Gunn, to see if he would answer some questions over email regarding the strategy of the business and how he felt things were travelling. Jason has kindly provided the below answers to six key questions of mine about the Oliver’s business and other related topics. Jason's answers give great insight into how the business is performing and his vision for Oliver's in the future. In a first for the IPO Review, I present my interview with Jason Gunn.
Oliver’s is obviously a business that has strong values and ideals, but now as a publicly listed company there is more pressure than ever on financial performance. How do you balance your desire to be ethical and responsible with the pressure and scrutiny of being a publicly listed company?
-To me this is simple. To actually be a business we have to make a “Healthy profit” We have always had to do that, just to survive and attract investment. But it is not the main focus of the business; it is just something we have to do, just like we have to comply with the regulations and award rates of pay etc. Our number one goal is to make healthy food choices available to the travellers on the highways of Australia, focussing on providing a great product, in a very clean environment, with fantastic customer service, and we know that we have to do that profitably.
While there has been a revised guidance to your FY17 numbers, you have maintained your forecast for FY18. This now means you are forecasting revenue to grow from 20.436 Million to 41.909 million in one financial year. As an outsider, this seems like a hugely ambitious growth target. Are you able to explain why this is achievable?
-It is achievable for a couple of reasons. 1) We have bought back the 8 franchised stores. These stores were the best stores in our network, with significant turnover. As they are the highest turnover stores in the group, they are also the most profitable. Just buying these stores back will add over $11m to our group TO, and a significant EDBITDA contribution. 2) We are opening another 11 stores in FY18. All of the stores we are opening are expected to be good performers in great locations. Plus, with all of this growth comes scale, and with scale comes efficiencies.
You have gone from being the founder of a small start-up to the Managing Director of a publicly listed company. How do you feel your role has changed over this time, and have you had any challenges adjusting to the realities of running a larger company?
-Oh yes, there has been quite a transition. But you know, I love my role, and I absolutely LOVE this business, so I feel that this is what I am destined to do. At the end of the day the role is largely about building a really strong team of motivated and experienced people that are all pulling in the same direction. I have that now, more than ever, and with the support of a very strong board, and an committed investor base, who believe in what we are doing and where we can take this business, I feel more confident and clearer than ever before.
While online reviews of Oliver’s restaurants are generally very positive, one of the criticisms that is made from time to time is that prices are too high. You have said repeatedly that your margins are not excessive and that your prices reflect the costs of providing healthy food. Are you able to provide some detail on the costs of providing fresh, healthy food at highway locations, and do you see potential for your prices to come down as the business grows and economies of scale kick in?
-Good question, but realistically no, they wont come down. In fact I do not believe that we are expensive, it just seems that way to some people. It seems that way to some people because we have all been conditioned to think that food is cheap, when it is not. What is cheap, is highly processed food that is full of artificial colouring, flavourings, and preservatives. This is not actually food. We should stop asking why REAL FOOD is so expensive, and start asking, “How can this cheap food be so cheap?” I think it is also worth mentioning, that being the worlds first certified organic fast food chain, we face many challenges around supply chain management that traditional fast food business’s do not have to overcome.
Unlike a lot of food chains, Oliver’s has decided not to pursue a franchise model and is in the process of buying back existing franchises. Are you able to comment on your reasons for avoiding the franchise model? Was this decision at all influenced by recent franchise problems at 7-11 and Dominos?
-No, nothing to do with 7-11 and Dominos’. Like Ray Crock in the movie “The Founder” my first experience of franchising was a disappointing. We are a unique brand in that we have strict nutritional guidelines and we are out to set a new standard when it comes to the quality of the food and the way we do business. I am not saying that we wont have a degree of franchising again at some point in the future, but for now we want to have absolute control over the way our stores are run and retain the profitability in the listed entity, rather than sharing that with franchise partners.
The Oliver’s real food IPO eventually went ahead at a lower than expected price due to what I assume was limited interest from institutional investors, and recent proposed IPO’s from Craveable Brands and Sumo Salad have been cancelled in entirety for the same reason. Is the Australian market too conservative when it comes to new IPO’s from Australian companies? Are you able to comment on the reception you received when promoting the Olivier’s Real Food IPO?
-We received a fantastic reception from the institutions we met with, but the feeling was that we were over valuing the business. That said, we had significant applications from our customer base, so they did not think it was too expensive. But there were other factors affecting the overall market, and as a result, we lower the price to meet the institutional market, and thereby achieve our goal of listing.