Freeman’s Lotto & Café opened as what Freeman describes as “an old-fashioned newsagency” on Wellington’s Lambton Quay in 1973. Freeman is a third-generation dairy owner – his father had a dairy, as did both sets of grandparents.
In 1987, he introduced Lotto to the business. The sale of the first ticket was a grand affair, overseen by then Internal Affairs Minister Peter Tapsell. At the time, Freeman says, he didn’t realise how much Lotto would change the nature of his operation – it introduced hitherto-unknown technology into the heart of Freeman’s Lotto & Café, and also made it part of a franchise.
Freeman ran the business for 25 years, but says he’d have reconsidered establishing the café arm of Freeman’s Lotto & Café if he had the benefit of hindsight.
The café was opened during 1994, in response to an opportunity to take over the lease of a neighbouring store following its closure. Freeman knocked a hole in the wall to create flow between the two spaces, then talked his wife Maggie into running the café.
“She was okay with it, but a little bit reluctant.”
The object of the exercise was to extend the Freemans’ business and diversify its offering. This was certainly achieved – the café was a success, but it took staff numbers from four to 16 in the space of a year. On top of the quadrupled staffing costs, there was also increased outgoings relating to insurance, rental, equipment, utilities and other resources.
The unexpectedly large staff didn’t prevent Freeman and his wife from sacrificing more of their time on both the café and the Lotto shop, either.
These extra costs ate into the business’s bottom line. Even though it had acceptable turnover, the café did not make a profit. The value it added to Freeman’s Lotto & Café was only realised when the business was sold in 1998.
“At the end of the day, we went to a lot more effort and time and cost, and didn’t actually make more money,” says Freeman.
He says the lesson learned is to watch for hidden costs relating to opportunities to expand, and to carefully analyse whether the expansion will add to your net profit before committing.
Russell is a volunteer mentor for Business Mentors New Zealand.
This story originally appeared in NZ Retail magazine issue 747 December 2016 / January 2017