A modest excuse to open the champers

Fortnum & Mason risked becoming a failed tourist attraction, but it is back in profit and set to expand.

Back in 2004, the relationship between Prince William and Kate Middleton was first revealed in the media, Tony Blair, the-then Prime Minister, faced the Hutton Inquiry over the Iraq war, and Greece won football's European Championship.

It was also the last time that Fortnum & Mason, the iconic London department store, made a profit. But this week the 303-year-old upmarket "grocer to the royal family" broke its losing streak by revealing it was back in the black – albeit to the modest tune of £100,000 – for the year to 18 July, alongside record sales up by 9 per cent to £51.2m. Beverley Aspinall, the managing director who joined the company in 2005 to drive a turnaround, eulogised about how footfall was up at its grandiose shop on London's Piccadilly and how sales of caviar, champagne and £1,000 Windsor hampers were showing "double-digit growth".

However, it has been a long, hard road back to profitability for Fortnum & Mason, with plenty of setbacks, including the hit to tourism from the terrorist attacks in London in July 2005 and a brutal recession that led to it cutting its workforce by about 10 per cent in early 2009.

Maureen Hinton, the lead analyst at Verdict Research, the retail consultancy, explained its problem this way: "Fortnum & Mason were very much dependent on tourism and a few local people, such as the Queen. It became a tourist attraction rather than a department store." Fortnum & Mason declined to comment on whether the Queen is an actual customer, but it has held a number of royal warrants stretching back nearly 150 years.

Ms Aspinall – who was previously the managing director of John Lewis Partnership's Peter Jones store in London's Sloane Square – has overseen massive change at Fortnum & Mason.

Above all, Ms Aspinall's turnaround plan has centred on a £31m refurbishment of its Piccadilly store that began in 2006 and lasted until November 2007. "It [refurbishment] has transformed the performance of the main shop itself," she said. "The strategy was to return the business to profitability and to make it relevant today and focus on the things we are known for and we do well."

Fortnum & Mason has four core activities: the retail store; its hospitality division including the in-store restaurants; online and mail order; and the international wholesale and airport operation. However, the key part of the recovery plan was to beef up its credentials as an upmarket food retail specialist.

More specifically, Fortnum & Mason has increased the proportion of its own-label food lines from 60 per cent to 80 per cent of the total, in an effort to make the most of its brand power. Ms Aspinall says: "We moved quite steadily into a lot more own-label product in the food area. The brand is very important and people want to buy into the brand when they come into Fortnum & Mason."

Among the changes made to its non-food offering, the biggest was its decision to ditch clothing. The retailer is also now moving more non-food lines, such as tea accessories and its cookshop offer, into own-label.

In other areas, Fortnum & Mason also increased its online range and expanded its hospitality services in-store and externally, such as its partnership with the Royal Horticultural Society's show at Tatton Park. While Fortnum & Mason was keen to grow its revenues from tourists, it was also determined to draw more domestic shoppers into its store both for shopping and eating in its restaurants, as opposed to just the occasional gift purchase.

Robert Clark, the senior partner at Retail Knowledge Bank, said: "There is an important domestic market for tourists and ladies from the provinces who have lunch there."

The store revamp saw Fortnum & Mason add two restaurants, giving it five. It also introduced a fresh food department. Ms Hinton at Verdict said the store "has kept its distinctive style and it has become more attractive to ordinary shoppers".

However, the recovery at Fortnum & Mason – which made a loss of £5.66m as recently as the year to 12 July 2009 – has not been without its hiccups. Above all, the recession "postponed its turnaround", says Mr Clark. "It has been an elongated process of reorganisation of the operation. It has been slowly, slowly, catchee monkey," he says.

With the recession seemingly behind UK plc, Ms Aspinall says she is "cautiously optimistic" about Christmas, although this week's snow has been "pretty devastating as people have not been coming into London".

Having delivered its first profit in six years, Fortnum & Mason is looking at overseas expansion again. While it uses worldwide stockists in 13 countries and has outlets at London's City and Heathrow airports, the Piccadilly site is its only standalone store. "Now is the right time for us to think about going into China, Hong Kong and the Middle East," Ms Aspinall said, although India would be further down the line.

On home soil, she also expects a "boost" from the royal wedding of Prince William and Ms Middleton in April. "We are looking forward to that," she said.

A 300-year legacy

* Fortnum & Mason, or "Fortnum's", has been trading from 181 Piccadilly in London for more than 300 years.

William Fortnum and Hugh Mason first opened the doors to the store in 1707 and it quickly gained a reputation as a retailer of high-quality food.

During the Napoleonic wars between 1803 and 1815, Fortnum's supplied dried fruit, spices and a variety of other preserves to the British troops. In 1851 the emporium created the world's first Scotch egg and today it's food, including the £5,000 Imperial Hamper for Christmas, remain popular among the well-heeled.

Fortnum's royal warrants date back almost 150 years with the first coming in 1863 when it was appointed "Grocers to HRH the Prince of Wales".

However, it has not all been plain sailing for Fortnum's, which was bought by the founder of Associated British Foods, Garfield Weston, in 1951 and remains in the family's hands today. Its first overseas venture was calamitous and it closed its store on New York's Madison Avenue shortly after opening, following the Wall Street crash of 1929.

Fortnum's five-story building in London remains its only standalone store globally, but it is now mulling over a launch in China, Hong Kong and the Middle East.