meBusiness.com.au

The buzz on social business

ANDREW MCUTCHEN – They give a fork… Kinfolk Cafe co-founders Jarrod Biffra (left), Elliot Costello (centre) and Asuka Hara (right).

There’s a mild buzz down the telephone line as I talk to young businessman Elliot Costello, but it’s only partially explained by the poor connection.

Costello is walking among the glass canyons of Melbourne’s CBD attending a series of meetings to drum up interest in his new venture, a downtown café with an extra ’shot’ to perk up interest. It is to be Melbourne’s newest, and arguably most prominent, ’social business’.

Don’t be alarmed if status updates, wall posts and a ‘like’ button are springing to mind. Social business is many things – even the answer to rebuilding a shattered post-crisis global economy, according to Nobel laureate and microfinance maestro Muhammad Yunus – but Facebook has nothing to do with it.

Also going by the name ‘conscience business’, a social business is the same as a standard, profit-oriented business except it ploughs all of its profits into solving social problems instead of back into the pockets of its investors. It is a non-loss, non-dividend paying company.

This model is driven by ’social entrepreneurs’ like Costello – a recruit of the Price Waterhouse Coopers (PwC) graduate program by day – whose goals for his social business, Kinfolk Café begin with paying the investors back their stake but then extend to deeper economic, social and environmental causes. He is joined in the venture by co-founders Asuka Hara and Jarrod Briffa.

Greed was good in the ’80s. Now aiming to do some good through the reach and power of your business – as Costello is attempting – is even better. While addressing industry leaders in Mumbai recently, Muhammad Yunus said that the current “crisis in capitalism” can, ostensibly, be traced back to selfishness and the fact that the marketplace makes no room for “the selfless dimension in people”. Social business, Yunus says, offers the chance for people to bring their altruism into the business world and solve social problems.

According to Costello, this sense of idealism is motivating many Generation Y business people to succeed, much like the sniff of the greenback and the snap of a new pair of Gordon Gekko suspenders did for Generation X.

“It’s an exciting time because Generation Y members and youth out of unis are seeing social business as an opportunity to integrate their business skills with their social vision.”

“Even my young graduate colleagues here at PwC want to be involved with a social movement that is greater than themselves.”

In Costello’s case, his cause is the fastest growing criminal industry in the world – and third overall behind drugs and weapons – human trafficking. An estimated 2.5 million people from 127 countries are being trafficked around the world.

“Our first mission is good coffee, this is Melbourne after all! But then customers will be encouraged to put a coffee bean in a cup at the point of sale that represents one of four nominated causes, so consumers control our profit allocation. Next we calculate totals and each week we post updates so they can see the outcomes of their choice,” says Costello.

The term ’social business’ was coined by Yunus, founder of the Grameen (‘Village’ in the Bangla language) Bank which has utilised the microfinance model to extend loans to an estimated 50 million Bangladeshi borrowers, in the process loaning out an awe-inspiring $7.6 billion USD with a 98 per cent payback rate.

Online social business www.10thousandgirl.com adopts a similar model of user empowerment. The site aims to improve women’s financial literacy first by bringing finance to life for 10,000 young women around Australia and then setting a ‘ripple effect’ in motion to raise $1 million AUD towards a microfinance program to help women globally.

It is a clever permutation of the social business concept by offering education and rewards (such as beauty treatments) to local recipients who will, ultimately, provide financial assistance to women in desperate need. 10thousandgirl member Kaye says she joined to learn how to avoid “living from paycheque to paycheque” while Mel enjoys the energy of “everyone nutting out what to do and when to do it”.

One of the founders of the program is social business up-and-comer Zoe Lamont who has recently been awarded a scholarship to the School for Social Entrepreneurs Australia’s year-long program which is offered in both Sydney and Melbourne.

“We want to send the message that if you help yourself it can help other people – take personal responsibility! There are certain things that stop people from stepping up in the world but if stories are shared it can help women all over the world relax and feel that their struggle is in a wider context.”

Kinfolk Café at 675 Bourke Street opens on April 27. The 10thousandgirl Campaign officially launches this July.

Source: theage.com.au

Coffee giant embroiled in bitter battle over beans

RUTH POLLARD – Accused of breaking agreement… Nabi Saleh and Peter Irvine. Photo: Jim Rice

The coffee giant Gloria Jean’s is facing a multimillion-dollar lawsuit that threatens to lift the lid on one of the most secretive companies in Australia.

Owned and run by the Hillsong Church elder Nabi Saleh and the high-profile church member Peter Irvine, Gloria Jean’s parent company, Jireh International, is accused of breaking a joint venture agreement with a small US-based coffee supplier, Western Export Services.

Western is suing Jireh for $56 million in unpaid commissions and damages. Jireh has launched a cross-claim, saying the 1996 agreement was invalid.

With 489 cafes around Australia and another 432 around the world, the Gloria Jean’s coffee chain has global sales estimated at $500 million a year. Its franchisees not only pay a fee, they are also required to enter into an exclusivity deal that obliges them to purchase all their supplies from Jireh International.

”A lot of information people have been trying to find out for so long about this business may finally be revealed in this case,” said Ross Koffel, lawyer for Western Export Services.

David Cisneros, one of the directors of Western Export Services, said after Western had worked to secure the Australian rights for Gloria Jean’s in 1996, Jireh had consistently refused to pay Western the agreed commission on its sale of coffee beans.

”[Mr Saleh and Mr Irvine] had an external accountant who kept giving us numbers that we couldn’t trust,” Mr Cisneros said.

”For us this has been 16 years and this lawsuit has been running for six years. It represented 40 to 50 per cent of our business – we were a small company and we could not just walk away from it.”

It is not the first time Peter Irvine’s business dealings have been in the spotlight.

In December, the former chief executive of Mercy Ministries, along with his fellow directors, admitted to engaging in false, misleading and deceptive conduct as part of an Australian Competition and Consumer Commission investigation into the practices of the Hillsong-connected organisation. They were required to pay $1050 and apologise to each person affected by Mercy Ministries’ conduct.

Mercy Ministries closed in October following revelations that it denied its young female residents appropriate medical care – before then, Gloria Jean’s franchisees were required to display a collection box raising money for the ministry on the counter of every store.

”It may seem different because it is business and not Mercy Ministries, but for me, I really felt connected to those other victims,” said Mr Cisneros.

”You look at their website and they talk about family and community and honesty and trust; these are all the things that they portrayed to us and then violated with us.”

In a statement released at the weekend, Jireh International says it will be ”vigorously defending the matter and denies the allegations contained in the claim”.

The case begins today in the NSW Supreme Court and is expected to run for three weeks.

Discounts are sending retailers broke, says Gerry Harvey

Lema Samandar – AAP

Gerry Harvey, CEO of Harvey Norman, who started his career as adoor-to-door vacuum salesman. Picture: Stephen Cooper Source: Herald Sun

INCREASED discounting of goods in the retail sector is sending some retailers broke, Harvey Norman chairman Gerry Harvey says.

Despite posting a favourable first half profit result, Mr Harvey said his Harvey Norman electrical and furnishing goods stores and its rivals were struggling under the pressure.

“Our shops are busy and there’s a lot of activity but it’s hard to get the dollars because of price reductions,” Mr Harvey said.

“There’s a lot of discounting, so if you’re a very good retailer you got to fix up your mix of business so that you discount the shit out of something to try and pick it out on something else.

“And if you’re discounting the shit out of something and you can’t pick it up on something else, guess what happens – you go broke.”

Mr Harvey said many retailers, including the big chains, were under huge pressure because of increased competition in a sector fighting it out for the consumer dollar.

“Mind you, we got that too – a number of our guys out there are losing money because they’re just not good enough.”

During this February earnings season, retailers have been reported relatively flat sales on the back of major discounting which started during the pre-Christmas trading period.

Earlier this month, department store giant Myer said it had a disappointing Christmas with first half sales rising only modestly despite heavy discounting.

Fashion retailer Country Road reported a fall in first half profit, in part due to heavy discounting.

Women’s apparel retailer Specialty Fashion Group said the first eight weeks of the second half of the 2009/10 financial year had been marked by aggressive discounting in the sector.

RBA rate rises hit home

CHRIS ZAPPONE

Post-Christmas sales cheer retailers

Australian retailers recorded brisk post-Christmas sales that offset a disappointing run up to the key holiday sales period marked by widespread discounts and margin pressures.

The rebound bodes well for Australia’s economy, of which nearly a quarter is generated by retail sales, and could improve the flotation prospects of at least three retailers owned by private equity after retail shares underperformed the market in December on sales concerns. (See this separate report on furniture trader Nick Scali lifting its profit outlook.)

“Post-Christmas somewhat made up for a slower-than-expected pre-Christmas,” Richard Uechtritz, chief executive of electronics retailer JB Hi-Fi told Reuters in a interview.

“Certainly post-Christmas made December a good month and January year-to-date has been very good. It is well up on last year,” Uechtritz said.

Retailers will officially report Christmas sales in early February. In November, retail sales jumped by 1.4 per cent, according to government data.

Woolies on track

Supermarket chain Woolworths’ discount department store unit Big W and recently floated department store chain Myer Holdings said the traditional Christmas period, which can account for as much as one-third of annual profit, met expectations on strong stocktaking sales after a disappointing lead-up.

Big W said homewares and big-screen TVs were the most popular items.

“Sales were brisk and pleasing,” at discounter Big W during the stocktake sales,” said spokesman Luke Schepen.

Myer said it was pleased with post-Christmas sales after a season in which retailers offered unusually deep discounts.

“Sales have been good but not great, in line with our expectations for the period. Since Boxing Day we have been happy with how the stocktaking sale has progressed,” said spokesman Damian Glass.

Myer has forecast a 3 per cent increase in sales for the fiscal year and a profit rise of 10 per cent, while upmarket rival department store David Jones has forecast profit will rise between zero and 5 per cent this fiscal year.

David Jones declined to comment on Christmas sales, but analysts expect it to upgrade its profit forecasts after the holiday period as it has done each year since 2005.

Several private equity firms will be closely monitoring industry conditions as they consider whether to float their retail interests in 2010.

They include Pacific Equity Partners’ REDGroup Retail, which owns bookstores Borders and Angus & Robertson; Archer Capital’s sporting goods chain Rebel Sport and CHAMP Ventures’ Retail Apparel Group.

REDGroup has said it will review its options in the new year, while Archer has hired three investment banks to advise on a planned float in the first half of 2010.

Shares in Australian retailers underperformed the market in December, with David Jones down 8.2 per cent, furniture and electricals chain Harvey Norman down 5.1 pct and JB Hi-Fi down 3.7 per cent.

The benchmark index rose 3.6 per cent in the month.

Reuters