Grounds for optimism as coffee chain grows

Nov 16 2009 by Andrew Mernin, The Journal

NEWCASTLE bakery chain Milligans has revealed plans to open five new cafes next year - creating over 100 jobs in the process - as it continues its expansion across the North.

Three years ago the company sold 16 of its community bakery shops and its 20,000 sq ft manufacturing plant to a North East rival, closed an additional four stores, and then set about growing the firm as a coffee shop operator.

At the time its remaining portfolio included nine coffee shops, three bakeries and a butchers, but in the last 12 months it has added a further four coffee shops, growing its workforce from 200 to 300.

While the three bakery shops will remain as they are, the company aims to grow its ‘Cafe M from Milligans’ brand throughout the North of England, with sites being considered in Blackburn, Bolton and Nottinghamshire.

The firm currently has sites as far south as Lincoln and as far west as Kendal and owns the Bowers butchers on Newcastle’s Nun Street, which supplies sausages to the cafes.

Prior to the sale of its 16 bakeries and Newburn manufacturing plant to fellow Newcastle firm North East Bakery, the company’s annual turnover was around £7.5m. In the aftermath of the sale, annual earnings dipped to £5.5m. However the company’s revenue this year is expected to return to beyond the £7.5m mark.

Managing director Stephen Milligan said the shift from bakeries towards coffee shops – and out of manufacturing – had played a major role in helping it grow through the recession.

Although he admits he did not see the economic downturn coming, he said the investment into coffee shops had paid dividends with better margins and more demand from cash-strapped shoppers for quality at reasonable prices.

He said: “Moving out of manufacturing is the best thing we have done without a doubt. Refocusing the business, re-branding and moving along the coffee shop route is definitely the way forward for our business.

“We’ve totally streamlined the business, we are more focused now, and we are not carrying the overheads that we had previously.”

Milligans, based in Jesmond, has more than 60 years of history behind its brand and today remains in the hands of the founding family.

The company has a close business relationship with North East Bakery, which retained the Milligans workers when its factory changed hands in 2006.

The rapid growth of the coffee shop in the UK has not been halted by the recession.

The strength of the sector was demonstrated by results from the Costa Coffee chain last month which showed a 70% rise in operating profits to £12.6m in the six months to August 27, on revenues up 21% to £155.4m.

Its parent company Whitbread continued to expand the chain through the downturn, adding 100 new shops in the first half of the year – bringing the total to nearly 1,000 stores in the UK and more than 400 overseas.