Insider - Profile: Richard Worthington, coffeeheaven founder

Richard Worthington doesn’t rate the shopping in London. Speaking as someone who has been around the European retail sector for around 25 years, he believes there is a much more civilised experience to be had in mainland Europe – and specifically in Eastern Europe.

As founder of AIM-listed coffeeheaven International plc, a new chain of coffee and sandwich bars based in Poland and due to be rolled out into the Czech Republic and Hungary, he clearly has a huge stake in taking that particular line. But his arguments are borne out by analysts who argue that Poland is the destination of choice for international retailers these days and is fast becoming one of the strongest retail markets in Europe.

Retailers, including luxury brands, are hi-tailing it to the shopping malls of Poland, he says. ‘You go to Riga now, or the Czech Republic, and I would say it’s just as buzzy as any city in the UK with the possible exception of London. You go to Prague – and you could be anywhere. All the shops are there: Escada, MaxMara, Dior. And nicer than here by the way,’ he says.

Nevertheless, proving that the right place for a new chain of coffee bars is in Warsaw – or even that the world needs another coffee bar chain – has been something of a struggle to explain to the UK investment community.

‘This, if you like, is the challenge I have with the investing public – they see what’s happened here. In the UK, the problem is that if you open a coffee bar and it is successful, you actually create your own failure, because someone else will open another one. There is nothing you can do about it. Somewhere like Poland, it’s different,’ he says.

The difference lies in town planning and in simple demographics. Poland has a population of 40 million people, many of whom live in major cities.

In addition, it has very few high streets. Its retail activity is concentrated in large and very modern shopping malls. In the rush to transform itself from command economy to a modern European player, Poland, it seems, forgot to experiment with the concrete brutalism school of retail construction and went straight on to developing large and light shopping malls more along the lines of Bluewater.

In these malls, position is everything. The advantage that coffeeheaven has over copycats lies in the fact that the mall managers plan their food halls with one prime coffee bar spot. ‘We make sure we get it,’ says Worthington.

The chain is now in eight cities in Poland, has 16 stores and around 200 employees. The management team is local – only Worthington and his managing director are non-Poles. Another six stores are currently at the terms agreed stage, and Worthington hopes that the first Czech Republic coffeeheaven will open soon. He’s on track to deliver his 50 stores by 2006 with development capital in the bank ready for the order to build.

Coffeeheaven was demerged out of another small company Bakery Services in 2001. Worthington was involved with Bakery Services as a consultant and was looking for ways to expand the business overseas.

‘Bakery Services was having a bit of a problem because the baking industry in the UK is very mature. We started to see where else in the world we could leverage our skill, where we could take the expertise and apply it. We looked at Poland and decided there wasn’t very much we could teach the Poles about bread, which we should have known already since half our employees were Polish. We did, however, see a huge opening for a Starbucks, Pret, Cafe Nero and Coffee Republic all rolled into one because there was nobody there. They had everything else – but you couldn’t get a decent cup of coffee.’

Worthington’s career path is firmly rooted in solving just this kind of development issue – plus a willingness to move to wherever in the world he feels has the right atmosphere. The buzz he seeks is entrepreneurial opportunity and ‘fun’ – a word he uses a great deal.

He is an FCA who qualified as a chartered accountant at 21 and promptly moved to Paris, joining Price Waterhouse’s Place de L’Opera office. He stayed in practice only two years, however, before moving back to the UK, having joined a US company called Farrington Overseas Corporation.

Farrington was Worthington’s introduction to developing entrepreneurial companies and to the world of fundraising. The company was founded by ex-IBM technologists who had raised funds in the US via bond issues. Farrington bought six companies across Europe and won big accounts, including Dutch investment bank ABN Amro. Despite this, the company foundered and having spent two and a half years looking after the European companies, Worthington found himself involved in selling them off again.

Worthington found his next role the old-fashioned way – by looking in the paper.

For 20 years until 1992 he was financial and commercial director at Estee Lauder – a period of great growth for the cosmetic house. What had been a 40-employee outfit with one fragrance and one factory was to become one of the industry’s dominant players, with 2,500 staff and a £200m turnover.

Working on turning Estee Lauder from a small company into a bigger one and helping the company set up everywhere from Saudi Arabia to Denmark was exciting. But Worthington never shook off his love of finding and developing new businesses.

With his boss – Estee Lauder managing director, the late Roy Harrington – he started getting involved in other businesses. ‘We’d find a small company and put a little bit of money in it, start helping the entrepreneurs on a part-time basis. I was basically a business angel. We found that we were actually quite good at it,’ he says.

He loved the entrepreneurial spirit of the company, but as it grew big the company problems inevitably started to take over. ‘As Lauder got bigger and bigger it became less interesting to be honest. In the early days you’d be out with all the girls working in the office and in the evening we’d set up the production line, so I’d learn how to make a lipstick.

But then the company got big – we got up to 2,500 employees by the time I left – and every time the phone rang it was a problem and it was always a serious problem by the time it got to me. It was a pain actually. You lost touch with products and customers.’

Worthington had already set up Richard Douglas Associates in 1975 as a part-time professional consultancy and Diggle Investments in 1989 to provide seed and early stage funding. Both are still active today.

When he finally left Estee Lauder in 1992, he and Harrington started getting involved in venture capital. ‘We set up a small offshore company, we funded ourselves and we started investing in little companies. I went all over America. I founded an oil filter recycling company in Salt Lake City. We did credit card fraud (protection) for pay phones in New Jersey, new types of skis in Boulder, Colorado. I had a fantastic time and we had some successes. We had a real home run with a company called Transaction Billing Resources, We sold TBR for a very considerable return on our investment.’

During this period Worthington floated three companies on AIM. He is still involved with two – John Lewis of Hungerford, a kitchen design company, and Bakery Services. He is still non-executive FD of the former and non-executive chairman of the latter.

His business interests may be widely spread – he has director posts or partner roles in 11 businesses in the UK and the US – but most of his focus is on growing coffeeheaven. He lives in Warsaw and spends three out of every five weeks there. His staff of 200 are mostly in their 20s and they are keen to shake off any vestiges of command economy thinking, as Poland’s ‘yes’ vote to EU entry shows.

‘We saw what was coming with the European Union. It was inevitable that if the EU was to expand it had to include Poland. Our view was that Warsaw would become the third leg of the EU. There are a 100 million people (in the region). That’s a lot of people. Coffeeheaven’s market as we see it is from the Baltics right down to Bulgaria.’

He admits that breaking into new markets won’t necessarily be easy. Hungary and the Czech Republic are more developed and much more open competition is likely. He sees his role as finding the right entrepreneurs locally and acting as a facilitator for them as they develop their own team and tailor the outlets to local tastes.

And with 16 stores already open and first full-year accounts for coffeeheaven reporting like-for-like store sales of 31%, it’s clear that he’s got the recipe for Poland right.

AIMING HIGH

Fundraising has been Worthington’s primary task in developing coffeeheaven.

The 2001 AIM flotation raised £750,000 and a further £400,000 was raised in June 2002. But coffeeheaven also has bonds in Polish zlotys traded on the Warsaw Stock Exchange.

The bonds issue, which took place in May this year, amounted to 14 million zlotys – around £2.33m.

Worthington wanted his debt in the same currency as his revenues. And he thinks he has enough development capital to fund the next round of expansion – ultimately 50 stores by 2006. ‘£2.5m doesn’t sound a lot here, but you can build an awful lot of stores for that in Poland,’ he says.

He believes that the Warsaw Stock Exchange has the capacity to become highly successful in the coming years, but says that it is still too liquid for his purposes and remains passionately committed to the Alternative Investment Market.

‘People knock AIM, but I think that it’s a fabulous market in terms of creating jobs and wealth. There’s no question that John Lewis of Hungerford could ever have got where it has today – which is a thriving small company – without AIM.’ ‘Investors have to understand that AIM is a long-term play. There are risks attached to AIM, but investors have to be patient. You can’t expect companies to grow overnight. Not everyone is going to become an Ask (UK pizza chain) overnight – it takes time.’ Worthington does have some concerns about charges. AIM is still too expensive, he believes. But contrary to popular opinion in London, he argues that it has good credibility.

‘What’s interesting to me is how it’s perceived overseas. We spend a huge amount of time knocking AIM. But the fact is we should look at how it is perceived outside the UK. The financial community in Poland thinks it’s a great market.’