Business Essentials: 'It costs us a lot more than peanuts to deliver our food to the shops'

High fuel prices, the congestion charge... how can a small firm stop transport overheads eating its profits?
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The Independent Online

It's not just car owners who are suffering from the rising costs of road travel. Dormen Foods has to transport its goods - premium nut mixes - across the country to supermarkets, delis, wine merchants and petrol stations, as well as sending a van to the centre of London to supply hotels. With soaring fuel prices and the increased congestion charge in London, it wants to know how it can cope.

"Either we swallow the cost ourselves, which will put our margins under pressure, or we pass it on to the consumer, which may affect sales of our products," explains Michael Brooks, co-owner of the business. "We want advice on whether consumers may be prepared to meet us halfway or if the experts have another solution."

Dormen is a small Wilt- shire-based firm, started by two school friends in 1992. "It began with us supplying five-star hotels with cocktail nuts and mini-bar jars full of nuts. Among them are the Dorchester, the Savoy and the Four Seasons," says Mr Brooks. "In 1996, we decided to launch into the retail market too, because we realised there was a gap there for good-quality nut products."

The retail side has gone from strength to strength, with Dormen supplying the likes of Fortnum & Mason, Selfridges, Harrods, Majestic Wine and Harvey Nich- ols, as well as some airlines.

Overall, the business has a turnover of £4m and employs 25 people. "We have got two of our products into Tesco for the period leading up to Christmas," adds Mr Brooks. "It's our first step into the multiples, so we're very excited."

The company's success has much to do with nuts getting great press. "Their health benefits are being widely publicised and a lot of consumers are swapping crisps for nuts. That's across the board, not just in our business. But as nut sales have grown year on year, the demand has led to a squeeze on supply."

A poor harvest at the beginning of this year forced Dormen to put its prices up in January. And it doesn't want to have to do it again as a result of soaring transport costs. "It's also significant that the high street isn't doing brilliantly at the moment," says Mr Brooks. "It's a particularly bad time to whack up prices."

Five days a week, Dormen sends a Mercedes Sprinter van, which is under 3.5 tons, to London to the hotels and retailers. "The 60 per cent rise in the congestion charge means that we're spending £2,000 a year before we even set off."

For its national distribution, the firm has a 7.5-ton lorry, and also uses other trucking companies. With fuel prices having risen over 20 per cent in the past few months, Dormen's purse-strings are feeling the strain.

www.dormen.co.uk

WHAT THE EXPERTS SAY

Stewart Masterton, Business Adviser, Business Link for London

"Many businesses are now feeling the pinch from rising fuel costs and the congestion charge. However, there are strategies that Dormen could consider to reduce costs and increase profitability.

"Minimise direct costs such as the purchasing and packaging of the nuts. Specify supplies of the right quality to minimise waste, and periodically run price comparisons on suppliers to source cheaper alternatives.

"Cost efficiencies can also be made in the business. For example, look at how the products are getting to the shelves. Is it necessary to send a van into London five times a week? If so, consider investing in or leasing vehicles that use alternative fuels, as these qualify for an exemption. Or perhaps share resources and costs with other locally based firms.

"Arrange with the hotels and large retailers to deliver on the weekends, when the congestion charge is not applicable. Staff may be willing to work at weekends if you promise them days off during the week.

"Consider outsourcing some of the non-core aspects of your business, such as payroll management and accounting. These might be done more cost effectively."

John Hix, Programme Manager, Freight Best Practice

"If you cannot measure it, you cannot manage it. Start by using a spreadsheet to record costs, miles-per-gallon and vehicle utilisation. The congestion charge is probably only a small element of your overall costs; fuel and drivers' wages will be more significant. Once you know your key costs, you can set targets for improvement.

"Can you cut out or consolidate journeys? For example, could you use a 7.5-ton lorry to do the London deliveries twice a week, say, rather than sending the van every day?

"Can you reduce the amount of fuel used during each journey? You could train and encourage drivers to be a bit less heavy on the accelerator. Showing them how to be more economical can typically reduce consumption on both van and truck fleets by 3 to 5 per cent. Fuel cards and bulk buying can also help to reduce costs.

"Relocating the business is probably not viable for Dormen Foods, but do look at alternative transport options. For example, you could consider outsourcing your transportation to professional van and truck networks."

Frank Omare

UK Supply Chain Expert, PriceWaterhouseCoopers

"Small businesses tend to feel the impact of challenges like increased transportation costs far more than larger organisations. Increasing the price of your products may not be commercially viable, given that you did this earlier in the year. So you could explore opportunities to increase efficiencies and reduce costs.

"We anticipate that many small and medium-sized enterprises will be reviewing their logistics operations in response to rising costs. Some are already using bigger vans to ensure that each vehicle is fully utilised while at the same time reducing the size of the fleet. However, other options may need to be explored as Dormen only uses one van.

"One option may be to distribute your products through vending machines. This has been highly successful for some companies and reduces the dependency on road transport.

"Partnering with other snack foods distributors or retailers may be another option for helping to bring costs down.

"Also, outsourcing your distribution operation to a third party could enable you to serve the needs of your customers more effectively."

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