Quadrant backs City Farmers’ tech-based strategy

"The company has a sophisticated database-supported approach to management that we hadn't seen before at this scale," Justin Ryan, a director at Quadrant, told AVCJ. "That extends to electronic direct marketing, but also the analysis of data around the network in terms of pricing and stock management."

The GP was suitably impressed that last week it paid out A$93 million ($84 million) for a majority stake in City Farmers, which sells pet food, supplies and related products from a network of 31 large-format stores.

The technology that plays such an important role in the company's operations is the work of its CEO, Clayton Hollingsworth, who was previously CFO of Australian internet service provider iiNet. City Farmers was founded in the early 1990s and Hollingsworth bought it five years ago - when there were about 10 stores - with backing from investors including Alan Green and Brian Singer, founders of Quiksilver and Rip Curl, respectively.

Several of these investors decided to stay on when Quadrant came in. "Some very successful entrepreneurs backed this guy to build something from scratch, which he has done, and they have made some handsome returns," said Ryan. "We are in the business of backing talent."

One of the technology solutions City Farmers introduced came after a pricing strategy review found that prices were being set based on a series of assumptions and traditions rather than scientific rationale. A software platform enabled data analysis at item and store level, generating pricing and promotion recommendations.

As a result, City Farmers narrowed the number of products that were known value items (KVIs), i.e. products that have a disproportionate impact on consumer price perception, from 400 to 89. This prompted a change in pricing strategy - so the right price was being offered at the right time to the right customer - which in turn delivered an increase in gross profit.

For Quadrant, City Farmers was also attractive because of its industry fundamentals. Australia's pet specialty products industry, estimated to be worth A$3 billion, is a seen as a defensive consumer play but one that is also exhibiting strong growth, driven by a trend towards the "humanization" of pets. It is also highly fragmented.

While City Farmers isn't the largest operator in the space, Quadrant decided there was significant scope for expanding the company beyond Perth, where it has a dominant market position, and into the country's northern and eastern states. City Farmers already has a nascent presence in Queensland and Victoria.

"There are a lot of independents, but the model isn't about acquiring these independents; it is about creating a national network with better buying power and creating a better customer proposition. Mom-and-pop operators don't have the capacity to do that."

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• Topics
• Consumer
• Buyouts
• Australasia
• Australia
• Consumer
• buyout
• Quadrant Private Equity