If you were to start a trading business, one that relied to a very large extent on having excellent connections to other parts of the world, where would you start it? Rotterdam maybe, Europe’s largest port?
Somewhere in the middle of Europe, perhaps, like the Ruhr? Possibly not Northallerton. North Yorkshire’s county town may be only minutes away from the A1 trunk road, but it could hardly be described as being at the centre of European trade. And yet there is trading business there, an edible oil trading and now manufacturing business, that has been a remarkable success story.
Having started out in 1980 as just one man in the bedroom of his bungalow in nearby Morton-on-Swale, the Kerfoot Group has now grown to be a mid-size corporate business employing over 100 people that looks set to turn over £80m this year. To be fair, the edible oils business is not just based in Northallerton.
It has production and warehouse facilities some 50 miles away at the port of Goole, and has in fact just spent around £1m in extending these.
But the company’s headquarters are in the town, and David Kerfoot, who founded it with his wife Elizabeth and has how finally decided to move upstairs from chief executive to chairman in April this year, clearly has strong ties with the town, including a number of outside charitable interests.
Founding the company in Northallerton, he says, was really driven by necessity. Back then he had just given up a job as a commodities broker for the multinational Cargill Group – a post for which, he says, he was given an exceptionally good training and grounding in the oils business – to come back home to Yorkshire to work for a logistics firm.
But he soon found out that many of the assurances that had been made to him about the company were not true, and within months he had fallen out with the management so badly that he and they parted company. He is clearly not someone to let a setback like that stand in his way, however.
“I left the company on Monday, and by Wednesday I was thinking: ‘What shall I do?’,” he says. “In our bungalow I thought: ‘Maybe there is a place for me in this oil market back in the UK.’ I knew quite a lot of people in the UK. At that time the UK oil industry was dominated by British producers, and oil importation wasn’t a wide market. But I could see we had competition within the EU.
"That presented me with opportunity to encourage continental producers to look at the UK market, which they didn’t know that well.” So he set out as an oil trader, never actually owning any oil but taking the financial risk of selling it and taking a commission once each batch was sold.
“One of my first clients was the Co-op for their margarine factory near Manchester,” he says.
“They were very decent to me.” He remembers the early days of trying to at least give the appearance of looking like a viable business very well. Back in the early 1980s email had not even been invented, of course, and what every commodity trading business needed was a telex machine.
Not to talk to clients and buyers – the telephone was all right for that – but to confirm orders. “In the early days I couldn’t afford a telex,” he says.
“But there was a chemical company in Northallerton that had one. So I did a little deal with them, so that I could come in at 5.30pm and sit and do all my telexing that day in return for a fee. I really did sit there each day from at 6.00pm to 8.00pm doing telex.
"We had started the business with only £300, but we soon realised we needed a little bit more space. So I took a little office in Bedale, and by then I could afford a telex. I was in fact the first person in Bedale to have a telex machine, but it was a monstrous size.
"On the day it arrived there was a queue of people outside wanting to look at it. And pretty soon some of them were asking what I had asked the chemical company. Just as they had done, I could offset costs by allowing them to use it. It was a big cost.”
He then wanted to expand the business into a position where he could store the oil if necessary, and he remembers trawling up and down Bedale high street trying to get a £10,000 loan from the local banks.
“Not one bank manager would loan me £10,000,” he says. “I thought it was a really good business deal, with a good cashflow – as did my wife, who had a background as an accountant. But at 26 they clearly thought: ‘Who is this bloke?’” Eventually through a contact of a contact he was introduced to a banker in Hull who would lend him the money – but at a price.
“The base rate then was 17%,” he says, “and he lent me it at 6% over base, so that was 23%. I had to give the bungalow as collateral, and I made a mistake when he asked if I had any other assets. I said I had a few shares my grandfather had left me. ‘I’ll have those too,’” he said.
Fortunately two months later Thatcher brought interest rates down by 2%. I remember going out into Bedale and having a very heavy Friday night.”
Notwithstanding such high jinks, he clearly had an eye for the margins, because he soon worked out that there was money to be made in transporting the oil too.
He might charge a client in the region of £45 to transport a £500 load from the Ruhr to Glasgow, for example, but by negotiating a more stringent deal with the individual drivers, he says, he could usually get a decent margin out of that. This, he says, is something he learned from his training at Cargill.
He says the one thing he hoped to differentiate his company on was personal service. Lots of people say that, but with the Kerfoot Group it does seem to ring true. Even today, the company produces a daily newsletter called the Oily Rag which it sends out at around midday to every one of its serious clients.
“This includes a synopsis of the overnight Chicago and Kuala Lumpur markets, a bit about currency exchange and petroleum prices, and then our view of where we see cash prices today. Our guys build a view of the market in the morning from the people they speak to, the brokers and banks, and by midday they can say whether rapeseed is up, soya bean is down, palm oil is steady, sunflower oil is flying, or whatever.”
A monthly newsletter written in more laymen’s terms, called the Oily Owl, is also sent out to every single client on the database. But personal standards pervade the group’s selling style too.
“I’ve told my guys that if you feel the market is going down, it is never any good selling that product,” he says.
“You should really say to the client: ‘Don’t buy it today, let’s review it tomorrow.’ Perhaps it’s the weather forecast, or the Ukrainians are dumping a huge amount of sunflower oil in Black Sea ports. But three days later it could be back up again, and then you are okay.”
That, he says, is the way you build trust with customers. And yes, the markets the company trades in really are that volatile.
“I first saw that when the Shah of Iran was deposed,” he says. “The Iranians had been massive buyers of US farm products. But when that happened the US just panicked.”
It might be modesty, but Kerfoot insists that while the company has grown well, it has really only grown in a way that he can be proud of in the past ten years.
“The business let me put three kids through private education which I am very proud of,” he says. “We saw that as important and it was potentially part of the success of the business. But there is so much I wish I could redo again.”
One thing, he says, was his attitude to credit control. His training at Cargill should have cured him, he says, but for 20 years he had a far too wayward approach to managing risk. “We are now very strong on risk analysis,” he says.
“Our risk controller assesses risk with different insurance bodies to see what is a viable credit rating.” Another problem was his approach to people management. Essentially, he says, the business was too focused on him.
“I always saw people as important, and a lot of people have been here for 10 years plus, so we must be doing something right. But the kind of things I see our HR doing now about skills assessments and putting the right people in the right roles – I wish we had done that then.”
He also maintains that his business planning was completely dreamlike, but if so, plans that have been implemented in the immediate past ten years have met with very real success.
One was to broaden the company out to go into more speciality oils, where again there is more margin, and where the company is now selling to the cosmetics industry as well as the food industry.
Another more recent scheme was actually going into manufacturing the oils. The company has contracted 30ha outside Bedale to grow speciality seed, and is currently negotiating to take on some more farming land.
“If we make the oil, process it and ship it onto the cosmetics manufacturer, we have virtual control of the chain,” he says, “and that gives us more margin.
"And a big winner for us is that if you have a big food conglomerate like Northern Foods, their buying strategy more and more is to be more consolidated. So if we can offer them bulk tankers of rape and sunflower, packed blended product and toasted sesame delivered to a bakery once a fortnight, that is quite an attractive proposition.”
Another benefit he hadn’t anticipated was the enormous amount of cross-fertilisation and cross selling the business has been able to partake in thanks to the new products it can deliver.
Customers, he says, are forever ringing up to say that they have heard the company has taken on a new type of oil and can they try it. The cosmetics market is always keen for anything new,” he says.
“This last year we have pressed tomato seeds and apple seeds too.” The obvious next step to become a truly vertical organisation would be to go into retail too. That is the direction Kerfoot’s daughter Jennifer, who is currently the company’s group people director, clearly wants to take the company in when she takes over as chief executive in April. But you get the feeling Kerfoot himself is still not sure.
“The older people on the board like me aren’t convinced because we haven’t seen the margins. “It has previously been company policy that on the food side we only sell to food manufacturers. On the cosmetics side we sell to retailers, but that is to go into their own products.”
Nevertheless, he has agreed to make tentative steps, and Kerfoot oils are now sold in the bakery department at wholesaler chain Costco. And David himself has no doubts that his daughter will take such a business and “fly” with it. “The good lord looked upon me in a good way,” he says.
“My children are amazing. I do not have to kick arse to get things moving. They know what the value of a pound is. And the value of education and experience. When Jennifer was in the sixth form she was passionate about Spain.
“So I sent her to an olive oil producer who was a friend. She worked on the cooperative, worked on the refinery, worked in the office, went on to do Spanish and Economics at St Andrews, and then did a year in Spain at the Bilbao School of Management.”
His son Tom also works in the company, as commercial director for speciality oils. And his other daughter, Ellie, is menswear buyer for Crew Clothing. So they have certainly all succeeded.
The only question to ask is what David himself will do now that he is stepping down at the still relatively young age of 59. He is excited about his local Pendragon Community Trust, which is developing care facilities for local disable people. “It’s about to buy its first property after 10 years of fundraising,” he says.
Much to his chagrin he has been relieved of his duties as a prison monitor – something he has done for 26 years - because of his age. This does seem unfair when you consider the age that judges are allowed to carry on working to. Kerfoot won’t comment on that.
But what he really wants to do is get more involved in the local enterprise partnership, where he is deputy chairman. He feels people who are trying to start out like he was 30 years ago are being given a raw deal today.
“Whatever I might say about the banker from Hull, back then there was always a bank willing to take a risk with its money on an idea - but obviously at a cost. Now that just does not happen. At least when I started I could get that £10,000, yet now all banks are completely risk averse.
“At the end of the day you might just have to take risks, otherwise how are we going to get growth? It’s just like us as a business. Why do we invest £1m in a factory site? Because we believe we can export more products and employ more people that way.” Some bankers out there must surely be listening.