Buying a business: Delicatessens

Britain’s tastes are becoming increasingly cosmopolitan – witness the rising number of celebrity chefs who champion European ingredients such as sun-dried tomatoes and Parmesan. And the trend seems set to continue.

This is good news for delicatessens. For while most local food shops have been feeling the strain from increasingly competitive supermarket prices, the ability of delicatessens to offer superior quality food to a growing number of connoisseurs has led to a relative boom in this sector.

According to Mark Sheehan, director of business transfer agents, Christie and Co, the market for delis is strong at the moment. “Successful retailing businesses tend to be niche operations and delis certainly fall into this category.”

Yet it is not just the commercial opportunities that draw people to the idea of owning a deli. Many people start a business as a lifestyle choice, and if you have a passion for food surely there can be no more enjoyable way to earn a living than surrounded by the finest delicacies from around the world.

So with delis combining profitability with the chance to work all day every day with delicious food, it is not surprising that owning one is a mouth-watering prospect for so many entrepreneurs.

What is it?

Delicatessens basically sell fine food, either as packaged groceries, fresh produce or pre-prepared dishes. The packaged food may include pasta, olive oils, wines and cakes for example. Most delis will also have a fresh produce counter stocking a range of cheeses and cooked meats (charcuterie), as well as dips, olives, and sauces. Often, they freshly bake bread every morning and many also offer ready-to-eat food prepared on the premises -pasta dishes and sandwiches, for example.

“We try to make sure that everything we stock you can’t get from the supermarket,” says Steve Turvill, owner of Limoncello delicatessen in Cambridge. “We have over 1000 product lines here and a horrendous list of 24 suppliers that we use regularly, just so we know we are getting the best of everything.”

As well as a retail outlet for fine foods of every description, some delicatessens also offer value-added services such as outside catering or gift items such as hampers – ideal ways to increase turnover while also showcasing the food. Other delicatessens attract custom by providing facilities for customers to eat in the premises, offering freshly ground coffee and home-made snacks for example.

But as a deli owner, your main activity will be food retail – the procurement, storage, displaying and selling of food items. It sounds simple enough but, like any business, to be a successful delicatessen owner there are several key skills that you will need to master and a certain personality that will stand you in good stead.

Who is it suited to?

As you might expect, there are no formal qualifications required for buying a deli. Working with fresh and pre-cooked food will nevertheless require some specific training.

“We’d recommend to anyone who’s going into a deli to do some courses because it’s very hard work. You can do an NVQ on retail for example, while environmental health training isn’t compulsory but is very useful,” advises Linda Farrand of the Guild of Fine Food Retailers.

If money is an obstacle, continues Farrand, you may be able to get some financial support for training. “Certain councils have sums of money allocated to them to enable people to go on courses. One of our members is going on a cheese-retailing course funded by the council. You don’t know until you ask.” The Food Standards Agency also produces a number of free leaflets the covering the maze of food hygiene regulations.

A food hygiene course will teach you about food storage, labelling and waste management. Gaining the relevant certificate will not only put you in a good light with the local environmental health department, it will also give you confidence in dealing with food and reassure your customers.

Less formal but equally valuable will be food preparation skills and a love of cooking. If you are selling pre-cooked food such as pasta dishes, pastries or sandwiches, you will need to know how to prepare these quickly and efficiently while maintaining high standards of taste and quality. Even the unprepared produce that you sell, such as packaged goods and fresh cheeses and meats, will need to be kept at the highest quality.

Remember that a delicatessen is a store for fine food and your customers will be passionate about the food they buy. If you share this passion and enthusiasm, it will come across in your shop and the products you sell.

Nicola Leeper is co-owner of Bon Gout, a delicatessen based in the St Leonards area of Exeter. “One thing when running a deli is that you should be able to advise your customers what they need to do with the food that they buy. People come in saying “We’re having a dinner party – what can we serve?” and it’s great to be able to give them suggestions and recipes. It also helps the sales, of course.”

Aside from culinary skills, you will also need to learn how to run every aspect of the business, from sourcing suppliers to pricing goods and doing accounts. Any management experience will be useful, but don’t worry if you don’t know everything before you start. Douglas Pearce, owner of Le Grand Fromage delicatessen in Shoreham-on-Sea, West Sussex, explains.

“I worked in catering management before, at the Cavendish hotel in Eastbourne for example. I learnt about bookkeeping in management, although I’ve now learnt that it’s easier and cheaper to get someone else to do it. Experience in running a business is not crucial. You can get outside help.”

A good source of advice will often be the departing owners. When buying a business, try to arrange a hand-over period during which you will be able to shadow the owners and learn about the processes they have developed. Ask them to go through the accounts with you, introduce you to suppliers and staff and explain the machinery.

Steve Turvill of Limoncello found that the owners are not the only people who can help in the early days. “I managed to retain one of the previous members of staff, which gave us some continuity and we built around that,” he remembers.

The hand-over period will also provide a valuable opportunity to meet your customers – and how well you interact with these people could be a crucial factor in how your business performs, as Pearce explains.

“The biggest thing is that you need to be a people person. You must be able to talk to the people that come into your shop because in a small business, people come see you as much as to shop.”

As a delicatessen you’re offering superior food products to supermarkets and as a small business owner you’re offering a higher level of customer service than supermarkets. A sociable manner and an enthusiasm for food will help retain existing customers and will also encourage first-timers through the door.

“If you’re excited about the food that you sell, that comes across to the customers and it’s infective – they get excited about the food that they are going to eat that night,” says Nicola Leeper.

Before you buy a delicatessens

The market is fairly healthy for delicatessens at the moment but what should you look for when buying?

First of all, decide where you want to locate. Delicatessens are specialised shops, so it is unlikely that you will have the footfall to justify a premium site on a busy high street. You’ll find that many are in small towns and villages, or on secondary sites in larger towns, away from the central high street.

More important is the area. Although it is not always the case, delicatessens tend to be frequented by professional people with a high disposable income. Therefore, suburban areas with an affluent population can be prime markets. The average local house prices will give you an idea about the prosperity of an area.

Be extremely wary of locations in tourist areas, even if an available business seems to be thriving when you view it. “If you are in a seasonal location, you sell a lot over the summer when the customers are there, but over the slow periods you risk all your food going off. If you’re not selling top quality food, you’ll lose the remaining customers and from there it can spiral downwards,” explains Leeper.

When you find a business in the right area, you can approach the sellers and start negotiations. This is the time to ask them about every aspect of their business.

“You should look at the trading history and also look for any possible new competition and any current competitors,” explains Sheehan of Christie and Co. “The quality of the equipment is important – you don’t want to buy a deli in which the counter needs replacing unless you take this into account.”

Also, look at the business accounts and adjust them to your own needs. If the current owner is making a profit it doesn’t necessarily mean that you will, especially if you had to borrow money. Likewise, if the owner is not making a profit, you may think you could cut costs to increase profitability.

Make sure everything can be verified with documentation. You will probably use accountants to go through the paperwork and assess the value of goodwill – the amount you pay for the value of the business built up over the years, its lasting reputation and regular clientele.

Thorough due diligence will ensure that you pay a reasonable price for the business and also help convince the bank to lend you money.

How much will it cost to buy a delicatessens?

This depends greatly on where the business is located, the quality of its fixture and fittings, how successful it is and whether you are buying a freehold or leasehold business.

Fixtures and fittings: Running a deli requires some fairly expensive equipment. It would cost around £35,000 to buy all the equipment needed to start up from scratch, including ovens, refrigerators, a deli counter and meat slicer. So an important job will be to assess the condition and suitability of existing equipment.

Freehold: If buying freehold, the price will include the bricks and mortar value of the building as well as the commercial value of the business and its fixtures and fittings. Owning a freehold is what most business owners aspire to, since they are not restricted by lease terms and as the value of the business and building rises so does the potential return you can get when you sell up.

For these reasons, freehold businesses are considerably more expensive. Prices start at around £100,000 and can rise to over £500,000, but remember that the bank may lend up to 75%.

Leasehold: Buying a leasehold means paying for the business, fixtures and fittings, goodwill and the right to occupy a premises for the length of the lease. Rental costs can vary – a small deli in the north of England may cost £10,000 per annum whereas large shop in Oxfordshire may cost £24,000 per annum.

Since you are not buying the building, the cost of a leasehold delicatessen will be considerably cheaper than a freehold and depends to greater extent on the commercial value of the business. Prices start at around £30,000 and rise to over £150,000 for a very successful business.

How much can I earn from a delicatessens?

The number of delicatessens setting up around Britain would suggest that there’s a good living to be made, although remember that many people choose this business more as a lifestyle choice than as a route to riches. Nonetheless, if you are in the right location and run the business well, good returns are possible.

The important thing to remember is that you will need a high sales volume to make a decent profit, since the margins are not as high as with many retail businesses. Nevertheless, delicatessens compare favourably to other food retail.

“The margins are anything between 25% and 60% gross profit depending on the make-up of the business. Cooked meats and cheeses tend to be higher margins, but even the retail goods tend to be the top end of the scale since delis sell their products on quality rather than price,” explains Sheehan. One delicatessen owner quoted a gross profit margin of 40% across the board.

You can increase turnover through selling hampers, take-away snacks or outside catering. These have higher margins than grocery goods and are also an excellent way of promoting your food to the public.

Leeper explains, “We do lots of outside catering which is something the previous owners didn’t do. It’s a good way of keeping our hand in as chefs. We do business lunches and wedding parties and we hope to expand this side of the business further. It’s quite profitable and it’s fun as well.”

Websites can be excellent marketing tools, advertising your produce and giving essential details such as opening times. Moreover, fine foods are a niche market with a dedicated customer base and therefore perfect for selling over the internet.

If you get all the sides of your business working well, however, the income can be good – several delis on the market quote annual net profits of around £50,000. All of which suggests that, for those owning a successful delicatessen at least, it is possible to have your cake and eat it as well.

Top tips for buying a delicatessen

Location

Location is key. Ideally it should be an affluent area whose residents have high disposable incomes. Avoid seasonal locations. Locating near other specialist food businesses can be an advantage.

Turnover

A high turnover is essential, because the profit margins on individual items are not huge. Consider increasing turnover through gift items, pre-prepared food, outside catering or an in-house café.

Customers

Strike up a good relationship with your customers as soon as possible, asking the previous owners to introduce you if possible.

Competition

Supermarkets are catching up and now stock a wide range of deli products. Look for nearby competition and stay a step ahead by stocking different products.

Website

An online presence is the ideal way to market the produce and provide details about the shop. An e-commerce site could also help you reach customers outside your local area.

Food Standards Agency Independent food safety watchdog www.food.gov.uk
Guild of Fine Fod Retailers Represents independent speciality food retailers www.finefoodworld.co.uk