Jim Kelsey: 'From a profit point of view, spending money on distribution is wasteful. It's wasteful economically and ecologically'

One of the few brights spots in the Irish economy during the past year has been the food sector. Last week, Bord Bia reported a 10% increase in the value of food exports, helped by higher prices and a weaker euro.

It is not just big food producers and exporters that are part of the trend either. Small food businesses which sell in local market are showing they, too, can thrive in a tough economic environment.

In For Lunch, a Cork-based pre-made sandwich delivery company, is one of them. In business for 10 years, the 12-employee company is set for a major expansion in 2011 after landing a national contract to supply sandwiches to Tesco, which had previously carried In For Lunch products only in Cork.

The deal will take the business from a local to a national brand. Founder and managing director Jim Kelsey said the Tesco deal alone could double the company's revenue to €500,000 in just 12 months.

"Our sandwiches were so successful in Cork that last year we went nationwide with two of our best sellers," he said. "We are looking at trialling a number of new sandwiches in Cork with a view to going nationwide. If we offer premium sandwiches that are not too expensive, we could double [our revenue]."

The challenge, Kelsey said, is "to innovate with volume". In For Lunch's top sandwiches are chicken and stuffing and egg salad – not exactly new culinary inventions. Kelsey is testing 14 "probables" for the new distribution deal.

But the expansion is not without risks for a firm that has stuck resolutely to local distribution and an emphasis on freshness and quality, which is harder to sustain when food has to be shipped long distances.

"I don't believe delivering 15 sandwiches to a garage in Longford is viable," Kelsey said. "From a profit point of view, spending money on distribution is wasteful. It's wasteful economically and ecologically. To make a profit we'd have to cut quality."

Kelsey went down that road early in the company's history. In For Lunch started out delivering individualised lunch packs for people at work who ordered through an automated system.

"The production of bespoke sandwiches and delivering in small volumes made the cost higher than what we could charge," he said.

Although the business model was flawed, it exposed the company to new markets. Local shops asked to stock pre-made In For Lunch sandwiches and other businesses began ordering sandwich platters for meetings. The business grew through these local contacts to the point where it was supplying the canteens in UCC and CIT. Again, In For Lunch couldn't produce down to the required price and lost the contract.

Things picked up dramatically in 2007 when it won a deal with Tesco at a local supplier roadshow.

The recession has made cashflow a challenge, too, as customers take longer to pay and suppliers are turning up the pressure. "We were owed €10,000 more at the end of December than we were at the end of November," said Kelsey. "Our customers turn our product into cash immediately, but it takes up to 90 days to turn it into cash for us."

Finance is not a problem for In For Lunch, unlike many SMEs at the moment. Kelsey is a former banker with AIB who knows what can happen to overborrowed small businesses in tough times.

"I've always avoided the temptation to carry debt in good times," he said. "It can crucify an otherwise good company with a downturn in sales."

In For Lunch has got by with an AIB overdraft, a grant from the local enterprise board and project-based loans from Lombard Asset Finance. The latter is funding machinery to automate sandwich making, which Kelsey said could triple production.

"It will enable us to bid for larger contracts," he said. "Previously we were only attractive on the basis of quality. This will make us more attractive on price."

Kelsey said he is in negotiations with another national retailer with centralised distribution for a possible "piggyback" deal akin to the one with Tesco.

Another option is franchising – an expansion option not without risk for a tightly managed small company like In For Lunch.

"We've stayed in Cork for a reason," said Kelsey. "If we spread further outside it will be through existing distribution or franchising."

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