Chocolate baron takes the biscuit

PETER THORNTON, the millionaire former chairman of his family's pounds 120m chocolate-shop chain, spends most of his time on the board of Quarrypak, a Derbyshire quarry aggregrates firm not far from his farmhouse in the Peak District.

But once a year he takes his helicopter down to the West Country to visit another of his interests, the biscuit and fudge manufacturer Sherriffs of Kingsbridge, Devon. The investment has come perilously close to disaster since he and other investors first bought it for pounds 85,000 in 1988, but at last he believes it is coming right.

Thornton, grandson of the founder of the Derbyshire- based confectionery manufacturing and retailing business, spent nearly 30 years in the family's chocolate factories 'and a good many school holidays before that,' he adds. With his brother John, who is still chairman, he was responsible for overseeing the company's southward expansion.

Yet, despite his long history in production and marketing in the confectionery business, he is a leading exponent of the hands-off school of venture capital. If the investor is distant and more or less unapproachable, management try harder to sort out their problems on their own, rather than looking for a fairy godfather. He believes this is why a turnaround has been achieved at Sherriffs. Last year, the company's sales grew by 50 per cent to pounds 1.2m, and it has budgeted for similarly rapid expansion, with a profit of around pounds 100,000, this year. Those profits are peanuts compared to the output of such giants as United Biscuits and Northern Foods. But if margins improve with growing turnover, the return could prove quite tasty, even on the substantial extra capital he has had to inject since 1988.

After a row between the brothers about who did what, Thornton left the family firm shortly before it was floated in 1988, giving him more than pounds 1m from the first tranche of shares alone. A small part of the proceeds went on what is now Sherriffs, a company which had started out making biscuits, fudge and toffee in gift boxes adorned with picture postcard views and 'A Present from Salcombe' on the lid.

Thornton ignored the packaging. 'I liked the product, I liked the factory, and I liked the fact that it was a specialist in its own area selling to a large number of small souvenir and other shops and to Woolworth's. To establish a food business is very difficult and to have a nice little local market already is useful.'

His experience taught him that the product had to be top quality, because the high-volume, low-cost players in the food industry would make mincemeat of small producers at the bottom end of the market. And, he adds, 'I eat an awful lot of biscuits. It's a pleasure to be involved in high quality.'

Thornton met Malcolm Durrans, the company's founder, at a trade exhibition. 'That's not the way to do it. It turned out we just didn't get on and he left within a year.' Was that because he no longer had any equity? 'People always talk about equity incentives, golden handcuffs and so on, but what matters is whether the relationship with the individual works, and this didn't'

The company was left with a gaping hole at the top. A big problem for 'business angels', private investors in small firms like Thornton, is that they seldom meet ordinary earthlings. So, even if they find entrepreneurs whose ideas they want to back, they often do not know the kind of young, energetic managers to whom they need to entrust their cherished investment in order to take it beyond its start-up phase.

It was only after a long search that Thornton found a suitable managing director, Ernest Fleck, who combined a training at Unilever with knowledge of his own family's bakery business in Glasgow, and installed Elizabeth Rowbottom, with whom Thornton had worked on another investment, in his place as chairman.

Sherriffs continued to lose money for more than three years. Turnover at one stage slumped to about pounds 450,000 and Thornton faced the loss of the initial pounds 85,000 plus a call on the much more substantial bank loans he had personally guaranteed. But better management information, along with smarter packaging, more butter in the biscuits and a more homemade look, helped the company reverse the trend and move towards breakeven in 1993.

Sherriffs is now also making biscuits for one of the leading supermarket chains to sell under its own label. So powerful is that customer that Miss Rowbottom refuses to have it named in print, and the company faces the great dilemma of all small suppliers to Britain's mighty food retailers: should they increase volume by supplying the lower-margin, own-label product, or should they build their own brand identity?

Thornton won't be the one to decide. Unlike many investors who can't wait to lord it over the boardroom, he reckons the key to success is to create a buffer between investor and company, where management does not have a large stake. 'If cash is short and you as an investor are emotionally involved and accessible, management say to themselves: 'He can put in another pounds 50,000, he's terribly wealthy and he doesn't want the company to go bust.' '

Thornton has been prepared to put in substantial extra sums, to buy the freehold of the factory as well as extra working capital, but he does not sit on Sherriff's board. He warns, too, that the Government's new Enterprise Investment Scheme, launched in the last Budget, could end in tears. 'I can see a lot of people who've taken early retirement or sold a business making some desperate mistakes. You shouldn't buy yourself a job by buying into a company you think you can run. That's a recipe for disaster.'

(Photograph omitted)