Patisserie Valerie’s new owner has laid bare the desperate state of the business it bought in January, including a cost-cutting approach so severe that managers stopped using butter in the cake chain’s puff pastry.
The private equity firm that bought the company out of administration for just £5m described its shock at finding broken ovens, unpaid suppliers, and a leak in the roof at a key bakery site.
Patisserie Valerie’s is one of Britain’s most notorious business failures of recent times, after the chain shocked investors last year with the revelation of a multimillion-pound black hole in its accounts that soon sank the business.
Matt Scaife, a partner at Dublin-based Causeway Capital Partners – and the man tasked with turning round the business – said it was clear that the company had been “seriously mismanaged” in the run up to its collapse.
“Things had been going wrong for a considerable time and as soon as we arrived the extent of the under-investment became increasingly apparent. There were ovens that had been broken for several months, and there was a leak in the bakery roof. Suppliers were often left unpaid, while new ones were sought. Overall, it was not a good culture,” Scaife said.
Scaife admitted that some of the corner-cutting reached extreme levels, including stripping butter out of key products.
“When someone decides to stop using butter in the puff pastry – in a patisserie - you know that something serious has happened. At the same time there was no head of health and safety in place which for a food business is extraordinary. It was symptomatic of what was going on across the business,” he said.
Patisserie Valerie, which at one stage was valued at £450m, plunged into administration in January after it was unable to secure new bank finance. The black hole in its finances that precipitated the crisis has turned out to be at least £94m.
Patisserie Valerie’s finance director, Chris Marsh, was arrested and bailed following the accounting scandal. The Serious Fraud Office has opened a criminal investigation but has not commented further. More than 900 staff lost their jobs in the wake of the collapse and the new company now operates 96 outlets with 2,000 staff.
At its height, the chain that started life in London’s Soho in 1926, had almost 200 outlets, employing 3,000 staff around the country.
Luke Johnson, Patisserie Valerie’s former executive chairman and its largest shareholder when it collapsed, has said he had no knowledge of the alleged fraud prior to October. Last week, he claimed he had been tricked by a fake picture of its financial health and questioned the rosy bill of health provided by auditor Grant Thornton. The chain’s collapse had shattered his self-belief and left feeling him physically ill, he said.
When asked about Scaife’s claims, first made in an interview with the Sunday Telegraph, Johnson declined to comment further on the basis that a criminal investigation remains ongoing.
Six months on from the buyout the “new” Patisserie Valerie is looking much brighter, Scaife said on Sunday, with plans to replace the outlets’ salmon and brown colour scheme and install a smaller menu. Scaife hosted a meeting of 140 key staff last week to thank them for their hard work in helping turn round the business.
“We are delighted with the progress we have made. We found a lot of problems but we also inherited some great staff who really care about what they do. There’s been a lot of hard work but it’s very much back on track,” said Scaife.