Cities of Enterprise: Greater Manchester
There is undeniably a buzz about Manchester. It is not just that the city and its surrounding region have been placed by George Osborne, the chancellor, at the heart of his ambitions for a “Northern Powerhouse”, aimed at unlocking the collective economic potential of cities including Leeds, Liverpool and Sheffield through better transport links, science and innovation. There is also a recognition that Manchester has handled its transition from older industries – predominantly cotton textiles – to sectors such as finance, media and digital business better than many cities.
The climate for entrepreneurs has improved greatly. “I moved to Manchester 20 years ago and it’s a completely different place now. The amount of investment in terms of office infrastructure and retail space is quite staggering. I think it’s become a world-class city,” says Morgan Davies, managing director and co-founder of Barburrito, a chain of fast-casual Mexican restaurants that was launched in the city in 2005 and has been expanding nationally.
“There is a feelgood factor in the region,” says Colin Stevens, who started out selling taps on eBay from his bedroom in Wigan, Greater Manchester, in 2001 at the age of 22. His business, Better Bathrooms, is now one of the UK’s leading bathroom retailers, with an annual turnover of £60m and an ambition to be as big as the likes of B&Q.
Out of more than 100 companies that BGF has so far invested in, half a dozen are in north-west England, mostly in Greater Manchester, and 21 in total across the north. Advantages of starting a business in the area include road and rail connections to the rest of the UK, an international airport and a population large enough to provide a platform for national expansion.
Entrepreneurial role models include John Roberts, who founded AO World, the online household appliance retailer, in Bolton in 2000 and Mahmud Kamani and Carol Kane, who co-founded online fashion retailer Boohoo in 2006. The region has business networks where young entrepreneurs can seek advice from those who have already made it.
Manchester is large enough to have a well-serviced base of bankers, lawyers and other professional services, yet small enough for people to meet and make personal contacts. Greater Manchester, with 2.7m people, comprises 10 local authority areas: the metropolitan boroughs of Bolton, Bury, Oldham, Rochdale, Stockport, Tameside, Trafford, Wigan and the cities of Manchester and Salford.
Thirty years ago Manchester was in desperate need of revival: about 400,000 manufacturing jobs in textiles, engineering and electrical goods have gone over the past 100 years. Greater Manchester’s recent growth has been driven by expansion of the service sector, particularly financial and professional services, which accounts for a sixth of employment and contributed 45 per cent of growth in gross value added across the region between 1998 and 2008.
Regeneration, which began in the late 1980s and was spurred on by the devastation left by an IRA bomb in 1996, has been notable for co-operation between public and private sectors. Developments include Spinningfields, a city-centre office district, and MediaCityUK on the banks of the Manchester Ship Canal in Salford and Trafford. Greater Manchester is now set to gain new powers over transport, planning, housing and policing – and also health and social care – along with a directly-elected mayor under a devolution deal with the Government.
“I tend to stay out of politics, but I can see that they have done a great job of building the Manchester brand,” says Mr Davies. “I think it’s a good place for national expansion. The people we do business with think it’s a nice city and it’s easy to get in and out of.”
Barburrito was BGF’s first investment in the North West, made in April 2012 when it provided £3.25m to fund a rollout programme. It has made ‘follow-on’ investments since then, and has now invested more than £11m in total.
Starting with a single restaurant in Manchester’s Piccadilly Gardens, Barburrito now has 12 restaurants in cities including Leeds, Liverpool, Nottingham, London and Cardiff. It plans to double in size over the next couple of years, with turnover expected to grow from £9.5m a year to £18m.
It became the UK’s first national burrito bar chain, in what is now one of the fastest-growing sectors of the restaurant industry. “I have always been a big fan of Mexican food and thought it was under-offered in the UK,” Mr Davies says. “It’s very versatile, it’s healthy, it uses fresh ingredients and it’s spicy.”
Barburrito’s target market is “hungry people who want to spend less than £10”. The biggest group of customers are aged 18-35 and the average spend is £7. Customers can be served in about two minutes if there is no queue.
Mr Davies drew inspiration from other Manchester-based restaurant businesses that expanded nationally such as La Tasca, Living Ventures and Tampopo. Four of Barburrito’s units are in Manchester, which is awash with restaurants and bars. “It is a busy, big city and it is intensely competitive in our sector, which is one of the reasons we took the decision to grow nationally,” Mr Davies says.
In terms of support services, he adds, Manchester has “so much to offer because you have got the same standard of service you would get in London but in a much easier-to-navigate environment”. He says it is a misconception, though, that Manchester is much cheaper than London. “Retail rents are up there with the Capital and the professional services we deal with are not significantly cheaper.”
His challenges now include maintaining operating standards as the business expands. The chain is currently introducing a new interior design to keep ahead of the competition. “Growing pains can catch you out in the restaurant industry,” Mr Davies says. “A lot start up well but really struggle with the expansion phase because the overheads get ahead of them.”
Mr Stevens, 35, the Better Bathrooms founder, set out at 18 to become a professional golfer and funded his career by selling golf clubs online, before deciding to concentrate on the bathrooms business as sales were taking off.
One reason for his success, he says, has been the ability to meet people from around the region who have built successful businesses and get advice. He attends meetings of the local chapter of the Young Presidents’ Organisation and has had five or six mentors over the past 12 years who helped with issues including raising funds and how to grow a management team.
After starting the business online, Mr Stevens opened his first showroom in Wigan in 2003. The company now sells bathroom products direct to customers, split 50:50 via the website and showrooms. More than four-fifths of its products are own-brand, bought direct from manufacturers to its specifications, offering designer style and quality products at competitive prices.
BGF invested £10m in the firm in June 2013, enabling it to accelerate growth. It now has nine showrooms and two trade counters around the country, with four more showrooms in the pipeline: eventually Mr Stevens thinks there could be 70. Turnover is expected to grow to £100m within two years. Its success so far, he believes, has been down to price, availability and service.
The company recently launched a German language website. “We believe there is a really good opportunity across Europe for an own-branded bathroom retailer,” Mr Stevens says. “The best-case scenario is that in five years we could get to a similar level of turnover in Germany to where we are in the UK.”
Better Bathrooms, whose headquarters are in Leigh, near Wigan, is very much a family enterprise. His elder sister Paula, his mother Linda and his father Peter all work in the business. Some people tried to tell him he could not achieve his ambitions from a Wigan base, but “my mum and dad always made me believe I could do anything I wanted to do”.
Mr Stevens says the North West is a good place from which to build consumer businesses because it has a critical mass of population. “If you have a formula that works, it’s quite easy to replicate it locally.” One drawback of being located in the outer part of Greater Manchester, though, is that it is sometimes hard to attract the right recruits. The biggest challenge in growing the business is hiring and keeping the high-quality managers that it needs.
He is pleased that the region has got the Government’s attention through the Northern Powerhouse and that “there seems to be a clear investment plan as to how they can grow the north-west economy”, though he adds that road congestion “badly needs sorting”, with daily queues on the M6 and M60/M61.
Tony Lenehan, chief executive of Altrincham-based Styles & Wood, an Aim-listed property services company, says: “Looking at basic building blocks like infrastructure and connectivity, Manchester is in a really strong position.” BGF invested £3.3m in the company in June 2015 alongside Henderson Volantis, part of Henderson Global Investors, which also put in £3.3m.
Styles & Wood, which has been in business for more than 30 years, was primarily a specialist in retail fit-out, a sector badly hit in the recession. Since Mr Lenehan arrived in 2011 it has diversified and seen results improve. It now works for clients including banks, finance houses, universities and healthcare trusts and offers services such as design, building intelligence systems, renewable energy solutions and project delivery.
The investment has strengthened its balance sheet and enabled it to accelerate its growth, potentially including acquisitions. “We are now in a position where our business model is scalable,” Mr Lenehan says.
Styles & Wood still does about 30 per cent of its business in Manchester, where strong demand for office space is helping it to win refurbishment work. It also has offices in London, Nottingham and Lancaster and a joint venture in Dubai.
Mr Lenehan previously ran the regional construction business of Bovis Lend Lease, which was the construction manager for MediaCityUK and built Royal Manchester Children’s Hospital. “Manchester has managed to develop in quite an agile and flexible way, given changing and demanding market conditions,” he says. He adds that Greater Manchester’s universities, with more than 100,000 students, “create a great environment for recruiting good people”.
As for the Northern Powerhouse, Mr Lenehan does not much like the term but says that “joining population centres across the north and marshalling their collective capabilities is a really exciting proposition”. There was frustration among businesses this summer when Network Rail “paused” electrification of the rail network between Manchester and York: it is now back on, but with a completion date three years later than before. Mr Lenehan says: “There is an impatience that major schemes that will take us to another level really need to get going quickly because there is a demand from business.”
Businesses are clearly keen to get on with making the next 20 years at least as fruitful as the past 20 have been.
This article was written by Brian Groom and appeared in Portfolio Issue #4.