Mind the gap: the business of recession

Having been in business for nearly 40 years, Graham Bultitude has seen no fewer than four recessions. Each has been different, of course. But there are nevertheless general conclusions to be drawn. “For a lot of small companies, recessions can be a good and a bad thing,” explains Bultitude, who started Bristol Batteries, selling mainly car batteries in 1972, just in time to be hit by the oil shock and resulting recession of the early 1970s.

If businesses are very small, they can find themselves squeezed out. But those that are better established and yet still small enough to offer competitive prices and a superior service can, as he puts it, “do quite well”.

There is plenty of anecdotal evidence that – although the UK economy has been struggling for some time – some businesses are not finding it as tough as others. There are always countercyclical sectors, such as insolvency practitioners and discount retailers, that do well in recessions. But this time around there have been stark differences in fortunes even within sectors.

Nor do the statistics offer much clarity. Even as official figures report further rises in the unemployment rate and contractions in the economy, other surveys are more encouraging. For example, the recently published latest Business Factors Index from Bibby Financial Services, suggested that business turnover was significantly higher than the same period last year, indicating that the UK economy is still on track for gradual recovery. Despite the disruption caused by severe weather in December, the index’s figure for the last quarter of last year was 99.5, up 8.5 per cent on the same period in 2009.

The pre-Christmas surge in output is reflected in the outlook of business owners and managers across the UK, which was captured at the end of November. A series of 300 interviews conducted for the report show a correlation between performance and confidence – with almost three quarters (72 per cent) of firms responding positively when asked how their business is currently faring. This is up from the 68 per cent who responded in the same manner in the third quarter. These results align with the findings of the latest British Chambers of Commerce Quarterly Economic Survey, which reports that profitability confidence increased to the highest level since the last three months of 2007. At the same time, research from recruitment firm Barclay Meade indicated that the UK jobs market was showing signs of a recovery as medium and large organisations increased hiring by 10 per cent and began lifting recruitment freezes.

Bristol Batteries’ Bultitude adds: “We have found that because we are a quite competitively priced company selling quality products we have become quite attractive to companies that wouldn’t normally look at us.”

Flexibility is also key. Bultitude started to see profound changes in the market in the 1980s, as auto batteries became longer-lasting and needed replacing less often. He and his wife Jacqualine – who acts as company secretary – decided to diversify away from the automarket. They concentrate on four or five markets, aiming to serve them aswell as they can by building a database of expert knowledge and ensuring they cananswer people’s needs quickly. “Most batteries are distress purchases – you need to have stock,” Bultitude explains.

Recent years have seen the company concentrating on such areas as backup batteries for lighting and security systems. Increasingly strict legal requirements regarding lighting in public places have created growing demand for batteries, with the result that Bristol Batteries now employs 38 people across five branches – Bristol, Swindon, Exeter, Truro and Plymouth – and will enjoy a turnover of about £6m this year, up from £3m in 2006.

That doubling in five years is partly attributable to acquisitions – the Bultitudes bought two branches from a retiree – but is largely down to organic growth. In recent years, the business has hired an accountant full-time and embarked on marketing rather than just reacting to demand. “We needed more management,” says Bultitude. “One of the things with recessions is it throws up opportunities.”

Seizing an opportunity has also been key to the success of Future Inns, a hotels business that over the past half a decade or so has opened three properties – in Cardiff, Plymouth and Bristol – deliberately targeted between budget and luxury hotels. The hotels offer “large comfortable rooms and a full service but without some of the frills” that make luxury hotels so expensive, says managing director Del Brett. As a result, he claims to be able to offer a superior experience at prices little higher than those paid at budget chains.

The business began in Canada – where they have two hotels – but moved into the UK in 2005 when Brett and his colleagues saw that mid-range hotels, already becoming popular in North America, had not taken hold in Britain. Being smaller than most of the groups operating in this area, the company had the flexibility to deal with planning laws that are typically tighter than in North America and gained an early foothold in what it believes will be a growing market. In addition, the company’s low debt ratio has helped it weather the recession so that each hotel averages turnover of £3m to £4m a year.

One company that looks especially well-placed to prosper in the current business environment is Southamptonbased Expense Reduction Analysts. Sure enough, managing director Robert Allison reports that the group’s turnover for the current year is about £11m, up 25 per cent on the previous 12 months.

Three factors are behind the success, he says. First, “without a doubt, procurement is much more important for clients”, than it has been in the past, given the economic conditions. However, the group – which has been established in the UK for 15 years and has about 150 consultants spread around the country – also practises what it preaches in keeping costs under control. Moreover, a lot of the savings have been reinvested in areas, such as marketing, where – again because of the recession – there is great value to be had.

Third, “the environment is supporting what we do.” For example, the cutbacks in public sectors will inevitably have effects on private companies, so there is work to be done by Allison and his colleagues in reducing these companies’ costs in order to keep them viable. What that is – essentially – is driving costs out of supply chains to make companies more efficient and competitive.

Large companies typically use international firms of specialists to advise on this, while small companies either don’t do it at all or use single consultants. Although the competition is increasing, Expense Reduction Analysts has found a “nice spot in the middle”. By helping companies install “proper supplier management techniques”, it is enabling them not to spend more but to spend better, explains Allison.

And, having battened down the hatches, some of these businesses are now feeling confident enough to take a few risks.

“It’s about getting the timing right. It’s about moving first,” he says.