Interview With Oliver's MD Jason Gunn

Republished By Plato

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Oliver’s real food has had a volatile first couple
of months on the ASX. While the share price initially soared to a high of 39
cents, market sentiment cooled when the company announced at the end of July
that they would narrowly miss their FY17 earnings and revenue projections. Although
missing prospectus projections is never a great look, Oliver’s management
stated that this was mainly due to delays in opening new locations and one-off
costs rather than lower sales, and have re-committed to meeting their FY18
forecast of $41.9M revenue and 2.37M NPAT.
At time of writing the share price is in the mid-twenties, still
comfortably above the initial listing price, and Oliver’s have continued to
provide market updates on the roll out of their new stores.

After such a dynamic first few months as a publicly
listed company, I reached out to Oliver’s founder Jason Gunn, to see if he
would answer some questions over email regarding the strategy of the business
and how he felt things were travelling. Jason has kindly provided the below
answers to six key questions of mine about the Oliver’s business and other
related topics. Jason’s answers give great insight
into how the business is performing and his vision for Oliver’s in the future. In a first for the IPO Review, I present my interview with Jason Gunn.

Oliver’s
is obviously a business that has strong values and ideals, but now as a publicly
listed company there is more pressure than ever on financial performance. How
do you balance your desire to be ethical and responsible with the pressure and
scrutiny of being a publicly listed company?

Jason
Gunn:

-To
me this is simple. To actually be a business we have to make a “Healthy profit”
We have always had to do that, just to survive and attract investment. But it
is not the main focus of the business; it is just something we have to do, just
like we have to comply with the regulations and award rates of pay etc. Our
number one goal is to make healthy food choices available to the travellers on
the highways of Australia, focussing on providing a great product, in a very
clean environment, with fantastic customer service, and we know that we have to
do that profitably.

While
there has been a revised guidance to your FY17 numbers, you have maintained
your forecast for FY18. This now means you are forecasting revenue to grow from
20.436 Million to 41.909 million in one financial year. As an outsider, this
seems like a hugely ambitious growth target. Are you able to explain why this
is achievable?

Jason
Gunn

-It
is achievable for a couple of reasons. 1) We have bought back the 8 franchised
stores. These stores were the best stores in our network, with significant
turnover. As they are the highest turnover stores in the group, they are also
the most profitable. Just buying these
stores back will add over $11m to our group TO, and a significant EDBITDA
contribution. 2) We are opening another 11 stores in FY18. All of the stores we
are opening are expected to be good performers in great locations. Plus, with
all of this growth comes scale, and with scale comes efficiencies.

You
have gone from being the founder of a small start-up to the Managing Director
of a publicly listed company. How do you feel your role has changed over this
time, and have you had any challenges adjusting to the realities of running a
larger company?

Jason
Gunn

-Oh
yes, there has been quite a transition. But you know, I love my role, and I
absolutely LOVE this business, so I feel that this is what I am destined to do.
At the end of the day the role is largely about building a really strong team
of motivated and experienced people that are all pulling in the same direction.
I have that now, more than ever, and with the support of a very strong board,
and an committed investor base, who believe in what we are doing and where we
can take this business, I feel more confident and clearer than ever before.

While
online reviews of Oliver’s restaurants are generally very positive, one of the
criticisms that is made from time to time is that prices are too high. You have
said repeatedly that your margins are not excessive and that your prices
reflect the costs of providing healthy food. Are you able to provide some
detail on the costs of providing fresh, healthy food at highway locations, and
do you see potential for your prices to come down as the business grows and
economies of scale kick in?

Jason
Gunn

-Good
question, but realistically no, they wont come down. In fact I do not believe
that we are expensive, it just seems that way to some people. It seems that way
to some people because we have all been conditioned to think that food is
cheap, when it is not. What is cheap, is highly processed food that is full of
artificial colouring, flavourings, and preservatives. This is not actually
food. We should stop asking why REAL FOOD is so expensive, and start asking,
“How can this cheap food be so cheap?” I think it is also worth mentioning,
that being the worlds first certified organic fast food chain, we face many
challenges around supply chain management that traditional fast food business’s
do not have to overcome.

Unlike
a lot of food chains, Oliver’s has decided not to pursue a franchise model and
is in the process of buying back existing franchises. Are you able to comment
on your reasons for avoiding the franchise model? Was this decision at all
influenced by recent franchise problems at 7-11 and Dominos?

Jason
Gunn

-No,
nothing to do with 7-11 and Dominos’.
Like Ray Crock in the movie “The Founder” my first experience of
franchising was a disappointing. We are a unique brand in that we have strict
nutritional guidelines and we are out to set a new standard when it comes to
the quality of the food and the way we do business. I am not saying that we
wont have a degree of franchising again at some point in the future, but for
now we want to have absolute control over the way our stores are run and retain
the profitability in the listed entity, rather than sharing that with franchise
partners.

The
Oliver’s real food IPO eventually went ahead at a lower than expected price due
to what I assume was limited interest from institutional investors, and recent
proposed IPO’s from Craveable Brands and Sumo Salad have been cancelled in
entirety for the same reason. Is the Australian market too conservative when it
comes to new IPO’s from Australian companies? Are you able to comment on the
reception you received when promoting the Olivier’s Real Food IPO?

Jason
Gunn

-We
received a fantastic reception from the institutions we met with, but the
feeling was that we were over valuing the business. That said, we had significant
applications from our customer base, so they did not think it was too
expensive. But there were other factors affecting the overall market, and as a
result, we lower the price to meet the institutional market, and thereby
achieve our goal of listing.