A Way to Prune the Cost of Branching Out

After four years, Susan Johnson was ready to expand her home meal-preparation business, Healthy Gourmet, into San Diego County. Based in Irvine, the company already had established itself in Los Angeles and Orange counties. How to expand without breaking the company’s back? Johnson found she could push south cheaply by relying on strong centralized operations and contracts with other small businesses. She was interviewed by freelance writer Karen E. Klein.

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We prepare between 4,500 and 5,500 fresh meals a week for our customers from Los Angeles to San Diego. We deliver to their homes, to satellite locations, or allow them to pick up their meals from our headquarters offices in Irvine and Santa Monica.

They can order three meals a day, seven days a week, or just get a single meal or a la carte item off our menu. They choose between three calorie levels and there is no minimum order.

We had been seeing demand for the meals from would-be clients in San Diego, so we made plans to open a third headquarters office there. As we planned, however, we realized what a large outlay we would have to make for office space, refrigeration, overhead, equipment and staffing.

All told, at least $8,000 a month, close to $100,000 the first year and we knew it would take at least a year before we could build up enough business to break even.

We’re a niche business and we don’t have the money to do lots of advertising, so we faced substantial lost overhead before our name-recognition and word-of-mouth referrals would really take off.

All our production functions are handled out of our 3,000-square-foot commissary in Irvine. When I first opened the business, I thought we would have to set up satellite kitchens as we expanded, but it became obvious we couldn’t, due to quality control concerns and expense.

We have one executive chef who oversees meal planning and preparation for the entire company, then we ship the meals from the Irvine commissary to all our customers in refrigerated trucks. This way, we don’t have to train additional kitchen staff, worry about meal consistency or deal with the considerable expense of a second production facility.

The more we thought about how well the central kitchen works, the more we realized that we could rely on a central office as well. Fewer than one-third of our customers come into our Irvine and Santa Monica headquarters to pick up their meals.

Most of them pick up their food from convenient local shops that we contract with for our deliveries--typically independently owned frozen yogurt or dessert shops and Gold ‘n Baked Ham franchises.

So, rather than open an office in San Diego, we decided to offer service there through our Irvine headquarters and use the contract pickup locations and home-delivery method.

Normally, we wait and open a new location in January, because our busy season is January through June, when people are dieting. But we opened without a San Diego office in May so we could have the program already in place and see how it was working before we hit the area with heavy advertising in January 2001.

We told our customers that they would have to opt for the more-costly home delivery or pick up their meals from one of our eight satellite locations, most of which are very convenient for them.

We met with almost zero resistance to this plan. People are happy to pick up their meals on their way to or from work twice a week. Those who cannot get out ask for home delivery, and pay a premium for it.

Last spring, my husband and I searched the Internet for possible pickup locations in San Diego County areas that match our customers’ demographics. Then we got in the car on a couple different trips and scouted locations.

Our drivers deliver the Healthy Gourmet bags twice a week to the refrigerators at the pickup sites and that business gets $3 per bag to hold the food until our customers pick it up.

These small franchises are happy to have extra income for doing very little extra work. It’s an additional revenue stream for them, and during our busy season they get nice checks each month. Sometimes one of these pickup locations closes and we have to scramble a little bit to quickly find another one and notify our customers, but it hasn’t been a big problem.

When it was time to set up our San Diego service, we got local San Diego area code telephone numbers that ring in the Irvine office, so our customers order directly from our headquarters, or they place their orders online. Most of the customers don’t even realize that they’re calling a remote office.

Instead of losing thousands of dollars a month in a new service area, we’ve been able to break even the last six months except for the cost of some advertising. We’re using existing drivers, trucks, telephone operators, telephone lines and office space.

Customer service and management is all handled from our central office. I don’t have to travel to oversee remote operations, and we haven’t had to purchase new computer and telephone systems that can go bad on us.

Meanwhile, we’ve established 50 new customers in San Diego.

We found that this is a very easy way to move into new areas. We have a core of customers who keep asking when we’re going to deliver to Palm Springs. Now we know we could do the same thing there.

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Recent Learning Curve columns are available at http://161.35.110.226/curve.

If your business can provide a lesson to other entrepreneurs, contact Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016 or at kklein6349@aol.com. Include your name, address and telephone number.

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AT A GLANCE

* Company: Healthy Gourmet

* Owner: Susan Johnson

* Nature of business: Preparation and delivery of calorie-controlled home meals

* Location: 17851 Sky Park Circle, Suite G, Irvine, CA 92614

* Founded: 1996

* E-mail: info@healthygourmetmeals.com

* Web site: healthygourmetmeals.com

* Employees: 30

* Annual revenue: $1.65 million