Change has kept Mills Group ahead in the great paper chase

SOMEONE in the queue for the Lottery in your local shop may have a chance of winning, but it is more likely to be the store that hits the jackpot.

The neighbourhood shopping market is already worth more than £21bn and that figure is expected to soar over the next five years as the supermarkets fall over each other to grab a piece of the action.

Nigel Mills jokes that he has, at last, found himself in a sexy industry. Talking to fellow business people at The Entrepreneurs Forum, the chief executive of North East-based Mills Group says: "No one is impressed by having to get up early to sell newspapers, but everyone wants to do this.

"I am finally in the business people want to be in."

There is no doubt that the convenience store is the sharp end of retailing - many of Mills Group's competitors have not survived.

Much of its success can be attributed to its owner's ability to evolve and survive. He inherited an entrepreneurial spirit from his grandfather who, in 1938, bought a newsagents that became a chain of 32. It was sold when his grandfather died.

Nigel was an accountant working for PriceWaterhouse when he took the decision to follow his dream of owning his own business.

"I wanted to be my own boss, so I put a business plan together, employed a solicitor and signed a contract for 11 stores on North Tyneside for £360,000," he said. Despite his confidence that no bank would refuse him the money, eight turned him down.

He was forced to remortgage family property and, with the help of family and a bank's agreement to lend him the final £100,000, he was able to close the deal on the shops.

In the late 1980s, if you were a newsagent who ran a good business you were rewarded with your own patch.

"At that time, in what was a complex monopoly, no one else could sell newspapers so we were protected from competition. In each business plan, I could realistically increase sales in news of six to ten per cent in retail terms each year."

Mills Group grew quickly across the North-East and into Cumbria and the East Midlands.

But dark clouds were on the horizon. The recession of the early 1990s hit newspapers and magazines hard as advertisers cut back. Publishers reacted by slashing newsagents' margins. With newspapers accounting for half of Mills' business, its gross profit fell by 25 per cent overnight.

With new outlets also able to sell newspapers, Mills was forced to diversify into the convenience store sector, which meant a new regime of late opening.

"As we converted, our costs went up. At the same time, people became confused about what we were and what we stood for - we had to change, otherwise we would die, but change was killing us in the short-term."

More bad news was to come. After investigating the newspaper industry, the Monopolies and Mergers Commission ruled that no changes were needed, a decision later overruled by then Trade and Industry Secretary Neil Hamilton, who deregulated the industry.

The number of outlets selling newspapers soared from 40,000 to 55,000, while the relaxation of Sunday trading laws meant that Sunday newspapers, one of local shops' most profitable commodities, was now available in supermarkets.

The National Lottery, launched in November 1994, provided a reprieve.

"Our stores were in the right locations and were well managed and we had newspapers to bring in footfall. The investment we had made over the years paid off when we were able to secure the Lottery. Almost overnight, we replaced the profit lost on newspapers and magazines."

In 1995, the Government introduced the Enterprise Investment Scheme (EIS), which encouraged people to invest in business in a tax-efficient way. It has worked well for Mills, which saw opportunities to expand, but was too small to float on the stock market.

Between 1995 and last year, it raised £8m from five EIS schemes, with investors twice doubling their money.

Last year, the group acquired 27 stores in Birmingham and South Wales. A further branch in Carlisle this spring took the total to 85.

Yet serious challenges remain, not least the national minimum wage. With payroll accounting for 60 per cent of the group's costs, every rise in the figure, which now stands at £4.50 for adults, is expensive.

Mills has had to continue to be innovative - 30 branches contain sub-post offices, most are off-licences and the group sells more National Lottery tickets than any other operator in the convenience store sector.

Stores have cash machines, offer bill payment and parcel collections and sell mobile phone vouchers.

Some branches have in-store bakeries, others have photo booths and two even have sunbeds. These services account for £44m of the £107m generated through the stores.

Among plans for the future is the growth of the group-owned website www.uniquemagazines. co.uk; an online newsagent with a stock of 6,000 magazines, compared to the 800 held by an average store. Mills plans to increase the number of hits from 50,000 a month to 500,000.

Nigel is proud of the convenience store model Mills has developed, although he admits: "I am sick of reinventing it, but I have to keep on growing."