Naafi commander joins up for store wars

Business Profile: The Forces' traditional supplier of home comforts is advancing on new fronts

When HMS Ark Royal set sail for the Gulf last month there were seven shop-workers on board, putting themselves in the line of fire. The staff work for the Naafi, the private company which operates the military stores and leisure services for the British Armed Forces around the world. With them they had 144,000 bars of chocolate, 36,000 cans of beer and a million cigarettes to keep the sailors satisfied. They were even gearing up to offer an Interflora service and mail-order teddy bears to send to loved ones back home.

And if British land troops go into Iraq, the Naafi will go in too, setting up huge, air-conditioned tents to provide drinks and snacks to the soldiers.

In charge of this quasi-military-commercial organisation is Chris Reilly, a 42-year-old North-easterner with no military experience whatsoever. Flown in from the private sector after spells at Blockbuster Video and Woolworths, the man from civvie street has found the move has taken some re-adjustment.

"It has taken a little time," he admits. "Just to understand all the ranks is a task in itself. I've got pictures on my walls to help me learn them. But you also have to learn how to address people, how to write to them."

He says he didn't even know what the Naafi was when the first headhunter's call came in two years ago. "I'd heard of the Naafi canteen but that was about all. When I was first contracted [about the job] I thought, no, I'm not interested."

But after a year as chief executive of this rather strange commercial beast (he did one year as finance director), he appears to be relishing the challenge.

Though no expert on the armed forces he now divides his time between the Naafi HQ near Salisbury and site visits to Army barracks and Navy warships. "Aircraft carriers are not as big as you think, you know. And they are very cramped below deck. You'll have four men sleeping in a space this big," he says, holding his arms out to indicate a room not much larger than a small bathroom.

He reels off the statistics of the Naafi, whose name is short for Navy Army Air Force Institutes. "The Naafi runs shops and leisure facilities on service bases in the UK and around the world," he says. "We are in Northern Ireland, Cyprus, Germany, the Balkans, Belize and the Falkland Islands. Our Expeditionary Forces Institute runs naval canteen services on 30 warships [including the Ark Royal]. In the UK our shops and pubs sell everything from milk and newspapers to tea and bacon sarnies.

"Overseas we run quite large stores. In Germany we operate nightclubs which can take 400 to 500 people. The commanders quite like it because it means the troops stay inside the wire. They're less likely to get into any bother."

The Naafi is quite a large enterprise with 4,000 staff who are mostly civilians, though the warzone staff are either Territorial Army members or choose to join up before going on naval or air force exercises. But though the business had sales last year of £243m it has not always been successful financially. As a limited company it must, in theory, stand or fall on its own. But the Ministry of Defence acts as its ultimate guarantor and it is perhaps this rather cosy position which allowed the Naafi to degenerate into a financial disaster a few years ago.

Big losses were racked up due to inefficient practices and increased UK competition from high street operators. But Neil McCausland was brought in from C&A to undertake a strategic review a couple of years ago while Tony Hales, the former head of the drinks group Allied Domecq, joined as chairman in 2001.

Mr McCausland closed loss-making stores in barracks that were under-used, improved supply and distribution deals while tightening up stock on controls. The changes have left Mr Reilly with a business that is now looking as ship-shape as one of the frigates its staff serve on.

He admits the business needed a shake-up. "There probably was an element of complacency but the staff are very committed," he says diplomatically.

The big losses were turned into a £500,000 profit last year and this year is set to see further gains. A proportion of profits or "surplus", as the Naafi calls it, is repaid to the armed forces as a dividend.

Mr Reilly now wants to go further. "We've got a number of projects on the go at the moment. We are working on a new mini-department store design in Germany. We're looking at the supply chain [with the view to taking out some suppliers] and improving store standards. We are also working on a £7m project to overhaul the Naafi's IT systems which will give us better information in out of stocks and what's selling. It will also allow us to introduce automatic replenishment."

He won't give his views on the Iraq war and says his statement that he will have land facilities ready to go in three weeks does not indicate a timetable for the conflict.

Indeed he is not certain a war would be good for the Naafi business. "It depends where the people are taken from," Mr Reilly says. "But overall, it would probably be a negative."

Mr Reilly was not an obvious choice to take over at the Naafi. Still only 42, his career had taken him though a string of retailers including Body Shop, Woolworths and House of Fraser. "That wasn't a great move," he says. "I ended up just finding ways to cut costs and after a year or so I thought I should move on."

Blockbuster Video, part of the American Viacom media empire, was more interesting, though the business was overshadowed by the threat of digital downloads of movies.

Mr Reilly is a private man who, during an interview and a lunch, failed to mention that he was getting married at the weekend. Of Irish ancestry, his immediate family hailed from Glasgow (he got married in a kilt) and he was brought up in the North-east. With four children he now spends most of his spare time either with his family or watching Newcastle United where he is a season ticket holder. "It's a long way from Salisbury but we are having a good season," he grins.

But with war in Iraq seemingly looming ever closer, he might need to miss a few games to organise the Naafi's own manoeuvres.

CHRIS REILLY - CIVILIAN IN A MILITARY MACHINE

Position: Chief executive of Naafi.

Age: 42.

Pay: Undisclosed.

Education: Newcastle Polytechnic followed by Certified Accountants' exams and an MBA via distance learning.

Career: Started in finance positions at British Gas and Durham City Council. Then in finance positions at Rumbelows (1987-90), Woolworths (1991-94), Body Shop (1994-96) and House of Fraser (1996-97). Finance director of Blockbuster UK (1997-2001), Naafi finance director (2001-02). Appointed chief executive in May 2002.

Interests: Family, Newcastle United.