Whatever happened to Doug Gurr?

Whatever happened to Doug Gurr?

[Peter Freyd]

  [Doug Gurr published 7 papers in the 90s with Carolyn Brown on categories,
  allegories, quandles, and such.]

                     Copyright 2006 Telegraph Group Limited
                          The Daily Telegraph (LONDON)

                              May 9, 2006 Tuesday

SECTION: CITY; BUSINESS CLUB; Pg. 9

LENGTH: 1185 words

HEADLINE: money case study

  Uncaging big opportunities in corner shops

  A just-in-time delivery service for convenience stores has hit profitability
  at a pounds 133m turnover.

  So what next, asks Philip Smith?

BYLINE: PHILIP SMITH

BODY:

ARMED with a doctorate in mathematical logic and theoretical computing,
backed by years of experience as a management consultant in the retail sector,
Douglas Gurr set out to devise a system that would allow convenience stores to
benefit from the same buying power, stock rotation and low pricing as the major
supermarkets.

He found the right formula. His Blueheath Holdings has grown from zero to a
pounds 133m turnover business in six years.

The challenge for Dr Gurr, 41, is how to maintain that growth and reach his
target of pounds 1bn. He also needs to consider whether the Blueheath blueprint
can be replicated across other sectors or in other countries.

What intrigued Dr Gurr was how small, independent grocery stores got their
supplies and, crucially, how they could compete against the big names.

"There were two options: either they went to traditional cash-and-carry
wholesalers and physically brought back thousand of pounds worth of stock, or
they paid extra for a delivery.

''The first ate into their time, the second into the bottom line. We thought
we could take enough costs out of the system to be able to offer all the
benefits of a delivered service but at a cash-and-carry price,'' he says.

Blueheath keeps its costs down by using technology: its system predicts what
stock will be wanted by its customers.

That, says Dr Gurr, is based on a range of parameters, including fashions,
bank holidays, weather and a customer's own stock levels. Blueheath then orders
from suppliers in anticipation of the orders that it will get from its array of
shopkeeper customers. This allows the company to keep stock levels low but
fulfilment levels high.

Fulfilment, which runs at around 95pc in the industry, says Dr Gurr, is the
level at which a customer's order is actually delivered at the store. The
missing products are mainly due to the wholesaler being out of stock. "We
operate at 98pc fulfilment,'' he says. "We live or die by our fulfilment and
on-time delivery percentages. If you get those right, most of the rest follows.'
'

Predictive ordering also means that stock remains with Blueheath for a much
shorter time, allowing it to service the whole of the UK from three depots: in
east London, the Midlands and Wales.

Blueheath has its own fleet of trucks but the bulk of its deliveries are made
using spare capacity in established hauliers. That, along with a policy to lease
its buildings, means that the Islington-based business is light on capital
assets.

Blueheath was formed in 2000 as a regional operation, allowing it to develop
a model on which it could raise funds for a UK rollout.

Two rounds of venture capital funding were followed in 2004 by a listing on
Aim. The two initial main funders remain principal shareholders. Its
slower-than- expected path to profitability hit its share price, which halved to
around 58p. This year Dr Gurr expects Blueheath to turn an operational profit
for the first time. It is the scalability of the system that allows the business
to look at much higher margins in the future.

"This is a scalable business,'' he says. "Scale allows you to get better
buying terms, operational improvements and, because the majority of costs are
fixed, improved profitability. We are now at the stage where we have reached the
scale to become profitable. It's taken a while to get here but it doesn't work
as a business until you reach the kind of levels we have.''

Blueheath currently has 4,000 regular customers, serviced by 200 staff,
mostly in sales and fulfilment.

Continued growth is what Blueheath needs. The sector is worth pounds 17.5bn,
of which the largest players account for pounds 2bn to pounds 3bn each. "The
bigger we can get it, the better it will work. There is no reason why this
shouldn't be a pounds 1bn-turnover business,'' he says.''

Growth would be self-funding but Dr Gurr is adamant that the company will not
advertise. "We have never spent a penny on advertising and as long as I'm here
we never shall. It's not an appropriate use of funds,'' says Dr Gurr.

Blueheath Holdings was the overall national winner in last year's
DTI/Interforum E-Commerce Awards.

                                  Expert view

Chris Jackson

Head of finance and management faculty, Institute of Chartered Accountants in
England & Wales

BLUEHEATH'S best growth strategy is market penetration, to grow turnover by
finding more of the same. The largest two players control 29pc of the sector,
leaving the remainder fragmented among smaller players. Sales effort here should
focus on Blueheath's superior fulfilment and better pricing (the larger
competitors are likely to be able to beat Blueheath on price through economies
of scale). This strategy maximises return from the current infrastructure. It is
also a low-risk strategy compared with alternatives such as licensing or
entering foreign markets, which would take Blueheath outside its expertise.

Word of mouth will not suffice and advertising is probably not the answer. In
the business-to-business sector, direct marketing is the solution. There will be
data for sale to assist with identifying the best prospects, which the sales
force could then target.John Timpson

Chairman, Timpson

IN ONLY six years Blueheath has acquired 4,000 customers and a pounds l33m
turnover, but it hasn't made any money.

It is time for Douglas Gurr to stop living the dream of his business plan and
face up to reality.

Dr Gurr puts his faith in economies of scale but it may not be so easy to
find the extra customers that he anticipates.

A safer route would be to create profit from the existing business. He needs
to increase margins and that probably means putting up prices. If customers feel
that the Blueheath service is helping them to make more money they will be
willing to pay a proper price.

There is more to business than mathematical logic. In today's technological
age, wizard computer solutions are taken for granted - it's old fashioned flair
and the personal touch that make the difference between success and failure.

Ultimately, profits always depend on people.

Dr Gurr should visit as many shops as possible and talk to his customers face
to face. They will tell him all that he needs to know.Amanda Rendle

Head of business marketing, HSBC

ADVERTISING can play a role in creating awareness but there are other
marketing techniques Blueheath could use to keep its profile high. For example,
using customer testimonials and case studies would deliver the controlled growth
Douglas Gurr requires. These approaches should be used primarily via the
internet. Word of mouth is also highly effective; both customers and sales teams
have a role to play here. By offering a reward scheme - money off or something
more tangible - many customers will gladly tell their colleagues about Blueheath
's price and service levels. Customers who make recommendations tend to do so
many times - it will only take a few endorsements to magnify the Blueheath
message. The sales force should also be ambassadors for the company, both by
making sales and by talking about the way that Blueheath operates - emphasising
the cultural aspects of the business and describing how they can be a benefit