Finance

Inside the collapse of Pie Face: The business didn’t make a profit for 10 years

Eloise Keating /

Pie Face had not turned a profit in the 10 years before it collapsed in November 2014, according to chief executive Kevin Waite.

Waite was speaking at a franchising forum held by Griffith University’s Asia-Pacific Centre for Franchising Excellence and the Franchise Advisory Centre alongside Pie Face chairman Andrew Thomson in June.

At the event, he presented a troubling picture of how dire the pie chain’s fortunes were before administrators Jirsch Sutherland were called in.

“A very painful experience”

Waite told the forum Pie Face was haemorrhaging money, had not made a profit in a decade, was lacking franchise experience at the top, owed money to every one of its landlords and was carrying 28 franchisee-failed stores, according to Franchise Business.

There was “severe trust deficit in every area of the business”, Waite said.

“Trust has to be built on integrity and competence. Trust always affects two outcomes: speed and costs. Distrust is very expensive.”

During the voluntary administration process, Waite said drastic steps had to be taken to ensure Pie Face survived. A total of 20 Pie Face stores were closed by the administrators, the most senior management team was removed and jobs were lost.

“A lot of innocent people lost their jobs a month before Christmas,” Waite said.

“I had always promised myself I wouldn’t ever do this, but I had to.”

A Deed of Company Arrangement was finalised on December 30, 2014 and Waite said the task then turned to convincing everyone involved in the business that “we have to start things in a new way”.

Thomson told the forum this meant steps had to be taken “with no hesitation”.

“We had to raise capital and stabilise the business,” he said.

“A steady board is key. Management can’t get on with the job if they are worried about the board. We were so toxic, no one would try and take us over, it was quite helpful in a way”.

Pie Face franchisees also needed to be on board with the new direction for the company.

“I’ve never been in a business so publicly humiliated,” Thomson said.

“But when I met the franchisees I felt so sorry, some had invested their life savings into it. Having taken it on, I have to save them.”

Cleaning up the mess

Waite and Thomson said they embarked on a turnaround program that involved not only bringing in a management team with more franchise experience, but also cutting costs.

“We would go through every store, line by line every week,” Waite said.

“Too often CEOs and MDs have a budget and say ‘off you go, make it work’. He handed accountability to the business development managers.”

The pair were confident Pie Face customers still liked the chain’s products, but they added more products to the mix, including salads and sandwiches.

The Pie Face factory is now also making pastry for third parties and once the appropriate licences are in place, Pie Face also plans to start wholesaling finished pies too.

Another key step was introducing a single point-of-sale system across the entire Pie Face network – which head office paid for.

“I couldn’t burden franchisees with more costs and we needed the information to run the business,” Waite said.

“We had to think, what can we do differently now to maximise our facility and bring processes in-house.”

“We’ve built ourselves back up”

Pie Face now operates 10 company-owned stores, in addition to franchised stores, and Waite says each of the company-owned stores is making money. Seven of the 10 stores will be franchised and the chain plans to open eight new outlets this year, with work underway on four outlets already.

Waite told the franchising forum Pie Face is paying its bills and meeting supplier commitments.

“We’ve built ourselves back up. The balance of power is starting to shift back to us, the customer,” he said, adding that turnover is up 3% year-to-date.

“We should be profitable by the end of the calendar year. We’re looking to make increases over the next three calendar years. The growth plan should steadily build.”

700 Pie Face stores overseas in 10 years

And despite an ongoing legal case in the US with Pie Face investor and billionaire casino owner Steve Wynn over the closure of eight Pie Face stores in New York, the company still has its eyes on achieving success in the US.

“Pie Face will fit better in the Midwest rather than with a flashy presence in New York,” said Thomson.

“We could get 200 stores in ‘tornado alley’.”

Pie Face has appointed a broker in the US and will start marketing this month. Moves into UK and Europe will follow, and two Pie Face stores will open in Japan before the end of the year.

There are three Pie Face stores in New Zealand, with seven more reportedly on the way this year. There are also stores in Singapore, Malaysia, the Philippines, and United Arab Emirates and Pie Face is considering entering Indonesia.

“Australia will always be the head office. But should all go according to plan, there will be 700 stores in 10 years overseas and this will be by far the biggest operation,” Waite said.

NOW READ: An insider’s account of the “spectacular implosion” of Pie Face

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Eloise Keating

Eloise Keating is the editor of SmartCompany. Previously, Eloise was news editor at Books+Publishing, the trade press for the Australian book industry.

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