Finance for a double shot of growth

Some of the most remarkable stories of entrepreneurial drive can be found among the UK’s franchisees – people who have started and built their businesses while embracing the support and assistance of an established brand. Take Alok Yadav, who came to the UK in 2007 at the age of 19. He spoke a bare minimum of English. His father had pointed him towards hospitality management and his college in India provided the opportunity to train on a work permit in the UK. He started work as a cleaner at a store in Portsmouth, impressing the owners sufficiently for them to pay his tuition fees at a college so that he could continue to stay as an international student. Getting his sleep on the bus between studies in London and work in Portsmouth, he grew with and learned from his employers over the following five years.

His experience gave him the itch to start his own franchise business – but that required funding. A combination of judicious juggling of personal loans, support from Alok’s father, and a single-store franchisee who was a willing seller - and who introduced Yadav to HSBC UK - enabled him to secure the funding to acquire a store in Norwich.

And with that, Yadav was away. Within three months, sales at the store had increased by 75%. Within two years, he was operating seven stores. From the outset, it was a true family business; Yadav’s brother and sister-in-law had come over to the UK and he had met his partner Rachael while at another store. “We didn’t take big salaries out and focused on reinvesting in the business,” he says. Their achievements were soon noticed.

At that point Yadav decided to sell the franchise. “There was a bit of me that thought I was just a working-class guy who shouldn’t be a businessman. None of my family were in business and so maybe I had done enough and should just go and get a job.”

His natural entrepreneurship overcame such doubts. He got back in touch with his earlier employer, who had now become a Starbucks franchisee. On his visit to the new Starbucks outlet, he also met a senior member of the Starbucks corporate team who knew Yadav. The stars were lining up.

After many rounds of interviews, Yadav became a Starbucks franchisee in May 2015. At 26 and 27, he and Rachel were among the youngest people to do so. And they needed capital to meet Starbucks’ requirements. With the help of HSBC UK, he opened his first store in Newmarket in February 2016. A second store soon started trading in Lowestoft.

So, from the start, Yadav has built a strong relationship with the bank. He cites HSBC UK relationship manager James Payton as having been a particular support; “he has helped us understand what the bank needs to know and on those areas that needed our focus so that HSBC UK could continue to support us in the best possible way. HSBC UK has played an integral part in our success.”

Over the past seven years, Yadav’s KBeverage business has grown in both new store development and acquisitions. “Buying existing stores means that you can improve their performance and build up equity,” he says. “New stores are riskier, but they interest me a bit more because a new store that trades well as soon as it opens really drives value.”

This spring, KBeverage purchased nine stores in a strategic move to open up new territories in the south of England and to access the east London market; the seven-figure transaction was funded 100% by HSBC UK and was unsecured. It was quite a statement of support for what was still a relatively young business. It expanded KBeverage’s footprint to 44 stores – from Nottingham to Lewisham, from Deal to Grimsby.

“It’s his ability to manage his costs and deliver strong financial performance that enabled him to come to us and demonstrate that our lending could be based on a multiple of EBITDA,” says James Payton. “That doesn’t happen overnight. He has grown his business steadily and we have had the confidence and the ability to support him.”

This latest transaction accounts for nine of the 12 outlets that KBeverage has bought. “We could take them on without incurring additional management and they gave us new geographical and demographic coverage,” he says. All the acquisitions made by KBeverage have been financed by HSBC UK.

“We have always been very transparent with HSBC UK. We have demonstrated that we are good at operating and have gained their confidence. They can see that we are reinvesting in our business, which is growing and has low levels of debt. And the more stores we open, the more cashflow we generate,” says Yadav.

By contrast to the acquisitions, the many recent new stores that KBeverage has opened have been financed out of cashflow. Fitting out new stores is very capital intensive and for the majority of Yadav’s entrepreneurial career, interest rates have stayed low. But he has been quick to adapt as interest rates have risen, keeping relentlessly focused on costs. KBeverage works directly with equipment suppliers and shop fitters, buying in bulk and making upfront payments to secure discounts.

KBeverage’s current turnover is approximately £25m, employing more than 500 people and Yadav is aiming to have 100 Starbucks stores by 2026. Now his horizons are widening. A new separate business is opening its first store. “It’s a big brand in pizzas and I have always wanted to be a franchisee,” he says. “We would like to open more than ten stores next year.”

The commercial property portfolio is expanding, with a separate property company buying its own drive-through outlets. “It’s important that we have ownership of a part of our estate,” he says.

Another new business has been established to operate a franchise that is relatively new to the UK. “Up until now, the fried chicken sector has been dominated by one company so there is scope for a challenger brand,” he says. “I think that it’s a market that could double over the next five years and we can build a presence in the big cities.

“We want to grow and diversify,” he says. “By 2030, we want our food business portfolio across all brands to be more than 200 stores.”