First a snack, now for the big bread: Roger McKechnie
Sunday 23 October 1994
But McKechnie refused to be put off. In 1982, he began manufacturing snack croutons, tortilla chips and puri in the gritty surroundings of Consett, County Durham, shortly after the closure of the steelworks that had dominated the town.
McKechnie used Fogg, the Jules Verne character, to give narrative thrust and marketing zip to a series of high-priced snacks.
Television advertisements later exploited the contrast between Phileas Fogg's exotic travels and the snacks' origins in Consett's unglamorous Medomsley Road.
However, the Consett location allowed McKechnie to take advantage of British Steel's backing and relatively low land and labour costs in an area of high unemployment, and his Derwent Valley Foods became the town's largest employer.
Last year McKechnie and his team sold out to United Biscuits for pounds 24m, taking pounds 2m in cash and a similar amount in shares each.
So when the Department of Trade and Industry's business network scheme put him in touch with Hossain Rezaei, there was a certain logic involved.
Rezaei's Pride Valley Foods, maker of ethnic breads, was later to be backed by British Coal and located in Seaham, County Durham, close to several closed coal mines.
'The DTI gets people who have done something in business to help out with advice for small companies. The entrepreneur buys you a drink in a pub and you give the benefit of your advice with no strings attached, without any question of liability or of becoming a shadow director,' says McKechnie, who is now a non-executive director of Derwent Valley.
He originally advised Rezaei how to get off the ground, back in 1990.
'Hossain hadn't been in the food industry and has a PhD in satellite electronics, but he just wanted to get started. He's a natural entrepreneur,' McKechnie says.
Rezaei's engineering expertise apparently helped him automate the time-consuming process of baking naan and pitta bread the traditional way, without sacrificing quality - though the pair are reluctant to give details that might be read by rival firms.
Rezaei, an exuberant salesman who left Iran in 1976 and wants to make Pride Valley Foods the biggest and best specialist bread-maker in Europe, has created a useful niche.
'I make a very authentic, Indian takeaway restaurant naan. Most pitta and naan makers are street-corner operations, but I can manufacture the best quality, with the best service, and a three-month shelf life in a factory that meets EU hygiene standards. The buyers from the major multiples ask me: 'Where's the catch?' I tell them there is no catch.'
Rezaei adds: 'The British palate is becoming very cosmopolitan. People are eating more hot and spicy foods and they want breads to go with them. When the Duchess of Kent opened my factory in April she said she was looking more and more for special breads.'
McKechnie says: 'I was just a mentor in the first stage, but I found myself spending more time on the company and then Hossain asked me to become chairman.'
Just after the Phileas Fogg business was sold, McKechnie and another non-executive director, Michael Hughes, founder of the meat group Dalepak, put convertible loans of pounds 100,000 each into Pride Valley Foods to finance expansion, giving them each 6.5 per cent of the company. Venture capitalist 3i has 11 per cent.
Pride Valley Foods received pounds 100,000 in preference stock from British Coal. It also benefited from a pounds 250,000, 7.2 per cent, fixed-rate term loan from European Coal and Steel Community funds, thanks to its proximity to closed pits.
The shareholders are to inject further finance for an additional factory on the Seaham site, to increase capacity to a potential pounds 40m sales.
Eventually, the company will employ an additional 200 people. The present staff number more than 100.
Fast expansion meant the company lost pounds 13,000 in 1993 on sales of pounds 670,000. However turnover was rising rapidly and McKechnie liked the high-quality, high-margin approach of Pride Valley.
'I was not missing Phileas Fogg, but I felt I could help Hossain.
Institutions have to be passive investors but I felt I could do more.' He now spends two or three days a month with Pride Valley, as well attending a formal board meeting.
The company is two years ahead of its original business plan and McKechnie reckons it could be turning over pounds 10m to pounds 12m in two years' time. Rezaei is more bullish still, forecasting pounds 14m to pounds 15m after six or seven years of existence. With the new factory, he says he could handle sales of pounds 40m. Phileas Fogg took 11 years to reach pounds 25m.
Unlike Fogg's branded approach, however, Pride Valley manufactures mainly own-label breads for Somerfield (formerly Gateway), William Low, Iceland and others to be announced next month. But McKechnie says: 'We'll be introducing some very different breads which we will be able to brand. They are absolutely unique.'
Pride Valley is one of about six investments McKechnie has made, mainly through his Medomsley Road Seed Capital Company, which is his principal activity at present. One, for example, is a company that manufactures road-making equipment suitable for Third World use, and another makes bullet- proof doors in Consett.
But Rezaei has his eye on a flotation or trade sale in a few years' time, so it looks as though Pride Valley Foods has the best chance of becoming Phileas Fogg Mark Two.
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