Interviews  >  Derek Coates: Never knowingly understated

Not one to hide his light under a bushel, Derek Coates talks to Nick Kirby about tourism, LVCR, the future of the Channel Islands and what he is up to next.

Derek Coates is arguably one of the most well recognised and prominent businessmen in Guernsey, if not the Channel Islands. He is the founder of Healthspan – the UK's leading home supplier of vitamins, minerals and health supplements – he created the airline Blue Islands, and he heads up Vista Hotels in both Guernsey and Alderney. He is also undeniably one of the staunchest supporters of business on the islands and is renowned for being outspoken and articulate about many issues, not least the state of tourism and the impact of the UK Government's abolition of low-value consignment relief (LVCR).

Admittedly, Derek is the first to point out that such outspokenness and frank talking may well rub certain people up the wrong way, but he refuses to be an apologist for having the islands' best interests at heart. He was kind enough to take some time out of his busy schedule to talk to businesslife.co and put forward some of those strong opinions.

Tell us how you got started in business

I went to university to study psychology back in 1969, and while I was there I read two books that really captured my imagination: Blue Sky Thinking by Igor Ansoff and The Age of Discontinuity by Peter Drucker. Both were about creative thinking in marketing, which I found very appealing. So I went back to uni to do a post-graduate MBA in business administration to study marketing.

From there I had the good fortune to join Unilever, went on to work at J Walter Thomson and ended up as Head of Marketing at Aluminium of Canada. It was during this time that I learned my trade while making my mistakes on other peoples money! At Alcan, I was fortunate enough to meet a chap called John Holmes with whom I formed a marketing and advertising agency called Holmes and Marchant. At the beginning there were three of us in a back room in Ealing, and 10 years later we had about 500 staff with a number of offices centred on London.

The business grew to a point where I realised that I didn't actually want to be the headmaster of the school, I wanted to be a teacher. So I decided to sell my shares and come back to Guernsey at the age of 39. So here I was, having a great time – flying all over the place, drinking lots of champagne, partying and skiing – but I soon got bored, and needed a new challenge. So that's when I decided to start another business. I guess I ‘retired' for two years, but retirement didn't agree with me and never will!

So where did the idea for a health company come from?

I didn't want to do something that had a ‘product lifecycle', such as VHS tapes! Health is something we are all concerned about and will be throughout our lives. I saw an advert in a newspaper 16 years ago that said: ‘For a healthy heart eat something fatty' and it was about omega 3 fatty acids. We all know what these are now, but then hardly anyone did. I found it all fascinating. When I launched the business we only had eight products (we now have more than 150), and omega 3 was the very first one I researched and developed to put to market.

So did you apply the same type of thinking to the airline?

Not at all. As the health business grew, we had millions of customers in the UK, and I figured it would cost me nothing in our customer magazines to advertise Guernsey to all of our customers and say ‘here is an amazingly healthy, natural place where you can come on holiday'. So I bought and renovated what are now the Fermain Valley Hotel in Guernsey and the Braye Beach Hotel in Alderney.

From there came the problem of actually getting people to the islands. So I bought a small airline called Rockhopper and changed its name to Blue Islands. This way I could use the empty seats, and give them free to people to come and stay in my hotels. So the airline followed on from the hotels, which in turn followed on from the Healthspan database.

You've been critical of the tourist industry in Guernsey – what do you think are its main problems?

The UK is still the biggest market for Guernsey and Jersey, and the islands' tourist industries are suffering because of the economic situation on the mainland. Then there is also the fact that people can fly to Prague, Spain and so on from the UK, for far less than they pay to come here. We have to do something about reducing costs.

I believe the current marketing approach is still too biased towards the UK and we need to market the islands towards countries such as Switzerland, Germany and France, where our flight costs are considered relatively low. But this can't be done by traditional marketing methods because our islands can't afford the advertising costs in all those countries.

My chief gripe against our own tourism industry in the past was I don't think that they had a sophisticated enough approach to online marketing. It's certainly getting better now, but it's a different world we live in, and we do need to continue to nurture our digital competencies.

Blue Islands has opened a number of new routes in the last year. Did the failed acquisition of Aurigny in 2010 drive that?

I still believe that our acquisition of Aurigny was the best thing that could have ever happened for our islands, because there would have been one set of overheads, a bigger fleet, massive synergies and an increase in reliability and the routes that could be run. It was a fabulous strategy that was supported by the top politicians, but it was defeated by the Guernsey press and the campaign that was run brilliantly by Aurigny to preserve the status quo.

So yes, we then had to change our strategy. We'd been refused routes from Guernsey to Bristol and Manchester by the States, who control the licensing of air routes, so we turned to Jersey who had an open-skies policy and were highly supportive of new routes. When BMI pulled out of Jersey- Manchester, we stepped in and also opened Jersey-Bristol and Jersey-Southampton routes, and our Zurich and Geneva flights are based out of Jersey because of the support that Jersey gave us. So because of Guernsey's government's licensing approach, we have now become a more Jersey-centric airline.

Do you make anything of Jon Moulton being made Chairman of Aurigny?

We're all kind of intrigued. Jon Moulton is an incredibly bright guy and I have massive respect for him. I can't imagine him coming into Aurigny and being a caretaker Chairman who does nothing. I look forward to seeing exactly what his motives are – they may be altruistic, but I'm not sure that's the sole reason for his accepting the challenge.

Moving on to LVCR, you have been very outspoken in the press, but it seems the game is pretty much up now.

The sad reality is that LVCR was created by the UK to save them money. It wasn't us that invented it – they did. The problem was that once Tesco and Amazon started to ship from the UK via Jersey, and other UK companies abused it, the retail pressure groups in the UK became defensive. The UK government had to do something to satisfy the pressure groups, and they took what I believe was the easy option of hitting the Channel Islands.

Despite the fact that the legal challenge was unsuccessful, I am delighted that the Guernsey and Jersey governments decided to undertake judicial reviews, as it demonstrates to the UK government that we have a voice and we wont just lie down when they kick us. The fact they stood up is great, but the UK politicians have achieved their goal and some companies have already decided to leave.

You have said that Healthspan will remain Guernsey-based, but you have announced redundancies…

Yes. Once we knew the judicial review had not succeeded, we announced the closure of our Pitronnerie Road warehouse and notified the staff of redundancies, having already warned them of the possibility beforehand. But we are only talking about around five per cent of our whole workforce. The Guernsey headquarters for the businesses will stay as it is, but sadly the people on the shop floor who put the packets in the post have been affected. That said, I'm confident we'll re-employ some of those 20 people.

Beyond LVCR, do you see any other threats to the Channel Islands?

Because Europe and the UK are in a financial mess, they are going to protect their own economies and get every penny they can from what they see as unfair practices, and to that end they will seek in every way they can to limit our ability to operate our own !scal policies. I believe we will see further attacks on our pensions industries and our trust funds in the future. They will continue to chip away at us and our governments have to be steadfast in their responses. I still believe in the Channel Islands being united and I believe we need to see our governments working closely together. It is happening to a degree, but there are still opportunities to work together more closely.

You've stepped down as CEO of Healthspan – what are your plans?

It goes back to not wanting to be the headmaster. I'm a creator of businesses, and that's what I'm probably best at. We are looking at expansion into France, I'm in China next week looking at opening there. We are looking at acquisition of businesses in the UK that are natural synergy businesses to our own. It's a very exciting time.

So what the future holds for you is more of the same?

Oh no, not the same – more buzz! That said, I'm going to try to divide my time differently. I plan to spend six months working in the businesses that I have, at least six weeks skiing a year, at least two months in the Caribbean. That leaves me the rest to play for. I want to spend more time relaxing because I !nd my best creative time is fallow time. I think everyone should do something new every 10 years – you have to do new things.

Reader Comments

Nick Stead at 25/08/2012 11:32:07

An inspiration and a talisman I look forward to following Derek's progress from here..

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