The recent sale of the iconic Australian confectioner, Darrell Lea, by the Quinn family to private equity firm Quadrant for a reported $200m, highlights the incredible transformation the business undertook in five short years since the acquisition from Administrators PPB Advisory in late 2012 for consideration of around $15m.
The sale concludes the incredible turnaround of Darrell Lea that was kickstarted by PPB Advisory during the Administration. As part of the initial stages of the turnaround we restructured the retail business, implemented rapid improvements to the manufacturing operations and reduced the number of product lines. The turnaround was accelerated by the Quinn family in the following years through further investment in operational improvements, improved branding and targeted acquisitions.
The Darrell Lea turnaround shows that appropriate strategic and financial planning followed by effective operational transformation can help businesses to overcome the significant challenges currently faced by the retail sector.
Acquisition in 2012
Darrell Lea was a previously loss-making business with a tired operating facility and weighed down by an underperforming physical store network. It was historically a seasonal business with the majority of its sales across Christmas, Easter and Father’s Day, resulting in significant cash flow challenges for the remainder of the year. It had also suffered from underinvestment in its retail network and manufacturing facilities.
Our initial restructuring work during the Administration allowed the Quinn family to acquire the business free of its store network and unprofitable product lines and set it up for a longer-term strategic turnaround.
How was it achieved?
A complete overhaul of the operating model that from inception in 1927 had sold its products via retail stores due to the perception that Darrell Lea was an “exclusive” brand of chocolate. In a struggling era for retail, Darrell Lea was reinvented through:
Using the Administration process to:
- Efficiently manage the exit of the owned store network
- Rapidly streamlining the cost base to reflect the new operating model
- Focussing on its core products with SKUs reduced from 800 to 60.
Following the Administration, the Quinn family continued to:
- Shift the business to a wholesale distribution model
- Drive sales into the major supermarket chains
- Make significant investments in new manufacturing equipment
- Complete targeted acquisitions of complimentary confectioners
- Not just bringing capital to the table but a hands-on approach to engagement with the customers and stakeholders.
Implications for other underperforming retail businesses
The retail sector in Australia is facing a number of unique challenges, including:
- Unaffordable rental costs
- Competition from new market entrants, most recently Amazon
- Rapidly changing consumer trends.
The Darrell Lea story illustrates how, with appropriate strategic and financial planning, underperforming retail businesses can be restructured into performing assets, by focussing on:
- The customer experience and how they can make their offering more compelling to consumers
- The range of products that are offered, their relevance to the retailer’s customers and their profitability
- The profitability of the various distribution channels (online vs physical stores)
- Consolidation, redevelopment and / or reduction of physical store networks.
Operational restructures of retailers can be undertaken outside of formal insolvency procedures, which may only be required to facilitate a capital restructure or to deal with an underperforming store network.
PPB Advisory is uniquely placed to assist stakeholders to retail businesses, with a combination of deep customer experience credentials and proven experience executing operational and financial restructures.
If you would like further information on the Darrell Lea story or how we can help retailers, please call Daniel Walley on +61 2 8116 3081