How should a business deal with rapid expansion?

Nina Hendy
@ninahendy

It might sound quite simple to replicate a successful business in other states to increase profits, but growing pains can be a major problem for businesses during times of rapid expansion.

In fact, trying to expand while still also continuing to run and maintain your original business can cause major headaches.

Rapid expansion hasn’t worked for Woolworths so far. The supermarket giant has sunk 3 billion dollars into US home improvement brand Masters to grow the retail network to 49 stores since 2011. The losses have been monumental – 176 million dollars in 2014 (which was 20 million dollars more than 2013) – and more losses are expected this year and next, dragging down earnings across the group.

However, expansion doesn’t always spell major financial disaster. Plans to grow Top Juice to 50 stores by the end of 2015 looks likely to be a far better financial decision for its founders.

The Australian juice franchise had just five stores in 2011 after evolving out of a fruit and vegetable shop in NSW. The business expanded into Victoria in 2014 and Queensland in 2015, and has a presence in David Jones food halls.

Top Juice is still 34 per cent owned by the founder, Ali Sawan, who moved to Australia from Lebanon to work in a fruit shop with his family. The franchise has emerged as a serious player in the juice sector, recently being named number eight on the BRW Fast 100 list.

We made the decision to grow into strong players in the market we were already familiar with.

Top Juice operates in the same market as Boost juice, which has made founder Janine Allis one of BRW’s richest women in business in Australia (number 24), with a net worth of 66 million dollars.

Top Juice general manager Barry Barber says growth has been approached in a financially conservative manner by funding expansion through its earnings, as opposed to borrowing.

Barber was prepared for the fact that rapid expansion would present challenges, but says the small management team has always pushed to deal with challenges as they arise.

Top Juice has very little infrastructure in terms of support staff, but growth doesn’t necessarily have to result in hiring lots of additional staff, he says.

“We made the decision to grow into strong players in the market we were already familiar with [NSW], and perfected our model before we even considered moving into other markets. We also used this time to build infrastructure around our reporting systems and processes so it was scalable.”

Barber says strong relationships with key providers was paramount. “Replicating the same shop fit-out and having close working relationships with our interiors companies has played a massive part in being able to roll out to other states without too many issues.”

The company also has a strong relationship with its IT provider, and had already established direct relationships with local growers, which also helped the expansion process run smoother, Barber says.

Nina Hendy

Nina Hendy is an Australian freelance business journalist and wordsmith who writes for BBC Australia, BRW, sections of The AgeSydney Morning Herald and affiliated mastheads, SmartCompany, Private Media and Edge titles.

Image: Supplied

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