Marcus’s Growth Strategy for Bentley’s Corner Barkery (not bakery)

This is one of the very best episodes to date.

Background

Bentley’s is a small chain of natural pet food stores which finds that it is growing too quickly for its own good. The business was launched in 2008 by Lisa and Giovanni Senafe. The owners refer to it as “the Trader Joe’s for pets.” It has seven stores in the Chicagoland area. The Senafes own 70% with a silent investor holding the remaining 30% of the equity in exchange for $300k.

The Problem

There are two big ones that Marcus spots immediately. First, about “half of the stores” are losing money when Marcus is called in. As Giovanni explains, there’s no management in place to run the chain so it’s a case of each individual store being self-governing. Second, there’s also an imbalance in the store margins because 60% of the merchandise generates only a 25% margin while the remaining 40% merchandise generates a 55% margin. Obviously, too much precious space is being wasted on very low margin goods.

There are also issues with each store looking, feeling, and operating very differently from the rest and along with an over-inventory situation at most of them.

So you have seven stores all doing their own thing? – Marcus

Giovanni explains in private the financial sacrifices he and Lisa have had to make to keep the business open over the past seven years.

Marcus quickly figures out that the chain as a whole is losing money in addition to having cashflow problems.

Giovanni and Lisa meet Marcus.

Growth via Acquisitions

On top of all this Marcus learns that Giovanni along with the silent partner, David, wants to acquire seven more stores in a single deal for $1.1 million. These new stores would bring in $3.3 million in additional revenues.

Do you expand like before you have your own house in order?

The Offer

Marcus decides he’s open to the mergers and acquisitions growth plan but takes steps to reduce his exposure with an interesting deal structure. He is prepared to offer a grand total of $1.7 million broken up into two parts:

• $400K will go for equity in the business and will be used to provide working capital and cover an IT infrastructure overhaul
• $1.3M will be used to fund the proposed acquisitions

In return he will receive a 40% equity stake initially. However, here’s a nice twist to it. If the $1.3M is paid back to him his equity will be reduced to 25% with the other 15% reverting back to Gio, Lisa, and David. Very nice. By doing so he ensures that the people running the company are incentivized to do a good job in both managing the business as well as repaying most of his principal investment.

In my humble opinion, this is a great deal for all parties!

Post Deal Drama

What would The Profit be without some drama? In a nutshell some fireworks are set off when Marcus pushes for lower-priced food products and using suppliers whom only recently got into the health food market. Giovanni and Lisa are pretty dead set against both changes.

But they worked it out. They had to. The deal is too good.

The Reboot and Growth Strategy

As usual, Marcus shuts down one location and has it rebuilt according to his branding team’s specifications. As usual, it ends up looking simply fabulous, darling!  He also moves the mountain of excess inventory to a central warehouse and updates the technology. Finally. he agrees to go ahead with the acquisition.

The Lessons

• A business needs proper accounting and reporting systems.  Marcus introduced an automated inventory management system which will keep all records up to date as well as a dashboard for Gio to use.
• For a business to survive it needs systems for everything: management, operations, inventory, reporting,  hiring, training, etc. Marcus will make this happen.
• With multiple retail locations it makes sense in most cases to have a centralized warehouse to keep inventory under control.
• Marcus had to twist a couple of arms but in the end he was able to introduce lower price point products to dramatically expand the potential customer base. He was also able to introduce a lot of high margin products as well as shown at the store reopening.

Don’t tell Gio, but it wouldn’t surprise me if this business grows to 100 stores around the country within five years. – Marcus

This is a great business with great people providing an important product. So much of the business news these days is about yet another Stanford MBA launching yet another app for dating that it’s become rather depressing in a way. All that wasted brain power and energy. Hey, how about building some real instead?

Best of luck to Gio and Lisa and Marcus.

Go visit their website.

A dog is the only thing on earth that loves you more than you love yourself.- Josh Billings

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