Meaty idea makes millions

Tony Featherstone
February 16, 2012
The Age

A former Wall Street banker is creating serious wealth from an unlikely source: meat pies. Wayne Homschek’s Pie Face Holdings was valued at $56 million in its latest capital raising and is on track for a higher valuation and Australian sharemarket listing next year.

The café and bakery chain expects to grow from 56 stores and $18.1 million in corporate revenue in 2010-11, to 140 stores and $55 million in revenue in 2012-13. Most stores will be franchised-owned in Australia. Homschek believes Australia could support 500 Pie Face stores and the business opened its first New York store on Australia Day this year.

Surprise move

The various faces on Pie Face’s offerings create a point of difference – as well as revealing what’s inside.

Homschek and his wife Betty Fong founded Pie Face in 2003 and only started franchising it in 2008. It was an unusual idea for Homschek, a mechanical engineering student and corporate finance specialist who started his career on Wall Street before moving to Australia in the late 1980s, and Fong, whose background is in retail and fashion design. Their only exposure to entrepreneurship was Fong’s small fashion label, since wound back.

After the dotcom bubble burst, Homschek left investment banking and looked for another job in 2002. He was passionate about running a business, but like so many budding entrepreneurs lacked a strong business idea.

Inspiration came when Fong suggested he consider Dinki Di Pies & Pastries, a popular French patisserie co-owned by her brother-in-law, Francois Cointrel, in Sydney’s eastern suburbs. Like all good bankers, Homschek knew how to raise capital to scale a venture. And Fong’s fashion background through the label Paablo Nevada, which she built with Homschek, would help create a unique, quirky product. After working in the fickle high-fashion business, both wanted a grass-roots product with mass-market appeal.

A clever friend, and a white-knuckle ride

All they needed was the name. Over dinner, a friend casually suggested Pie Face, a potentially memorable brand that resonated with younger adults and had a point of difference, where faces could be drawn on pies to show their flavour. This was the brand to take gourmet pies and sausage rolls crafted from a French recipe to Australians brought up on meat pies.

Not all went to plan. Different views among Dinki Di’s business partners saw Pie Face go its own way. Pie Face bought Dinki Di in 2007 and it now has seven standalone or jointly branded stores with Pie Face. Homschek had everything riding on Pie Face. “It felt like I didn’t sleep for five years,” says Homschek, the company’s co-founder and chief executive. “I just kept my head down in the business and tried not to panic. It really was a white-knuckle ride at times.”

Entrepreneurs with a difference

Homschek and Fong’s experience shows a different type of entrepreneurship. Most venture creators start in an industry they know and leverage their skills and contacts. Some turn a small business into a fast-growth venture, others compete with big companies on service and product innovation from the start. Homschek is part of a small group who apply entrepreneurial techniques across industries and to products in which they have no background. He believes not knowing anything about pies was an advantage: “I could purely focus on scaling the business.”

Homschek and Fong also show that entrepreneurship is not just for young turks or experienced corporate managers who want to do their own thing. Homschek started Pie Face when he was 40, and he and Fong have two girls under five. Few things are harder than building a high-risk, fast-growth venture while being a first-time parent.

Another difference was their capital-raising approach. Entrepreneurs are often told to keep as much equity as possible and “bootstrap” their operation by running it with few costs. A franchise model can be self-funding, as franchisees effectively fund business growth upon buying a franchise. Pie Face raised significant capital upfront. In doing so, Homschek and Fong diluted their ownership to 20 per cent and now own a smaller slice of a much bigger pie (pun intended).

No humble pie

A critical decision was owning the supply chain. Some food franchises buy their product from other suppliers, thus losing control of parts of the supply chain and risking product quality. Pie Face invested millions in a Sydney factory that makes and snap-freezes pies and other goods, and distributes them to Pie Face stores for heating.

Building a supply chain that can service hundreds of stores nationwide is complex; it needs deep logistics skills, much capital and is risky. The upside is a central manufacturing facility provides huge economies of scale as the business grows and helps quality control. It is a one reason why Pie Face forecasts net profit rising from $1.1 million in 2010-11 to $11.2 million in 2012-13.

Taking on the fast-food giants

Pie Face now wants to take on the fast-food giants and expand into the US. With coffee, pastries and sandwiches also on its menu, the product is broad enough to target the morning, lunch and late-night snack markets, mostly through small city stores. Recovering a typical $400,000 investment to buy a Pie Face franchise is estimated to take two to four years.

Franchising success is not easy. Australia is among the world’s most franchised markets, but few fast-food outlets with dozens or hundreds of stores have emerged in the past five years, such are the funding challenges and complexity of building enough scale. There is also specialist pie competition and broader competition from bakeries, convenience stores and service stations.
Pie Face still has plenty of challenges. But if recent growth continues it could become one of the more successful Australian franchises, and a booming investment for some shrewd bankers who saw hidden value in the humble meat pie.

Homschek’s five secret tips

1. Be resilient: Know that entrepreneurship can be a white-knuckle ride.
2. All or nothing: Be fully committed to one strong business idea. Don’t get distracted with smaller opportunities.
3. Equity: Don’t get hung up on majority control. Focus on building shareholder value.
4. Customers: Focus on the full customer experience. Look at how and where customers consume the product and how they feel about it.
5. Offshore growth: Resist expanding to several countries unless there is a compelling case

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