Bulmers is a ship adrift, now that chief executive Mike Hughes, the man brought in to turn the UK’s leading cider-maker into a major international drinks company, has resigned.
A number of miscalculations and misreadings of the market have left the company with a depressed share price and, apparently, lacking a strategy. The cider market itself is in slow decline, down one per cent on last year to a volume of 5 million hectolitres. Bulmers has 60 per cent by volume, with its flagship Strongbow brand taking 25 per cent.
Hughes fell on his sword after the company discovered an estimated £3.3m in extra costs not properly accounted for, and apparently related to promotions with retailers. The auditors have gone back to establish the figures exactly but, until they report, the 12.6p a share dividend, which should have been paid out at the end of this month, has been cancelled.
In the past year, Bulmers’ share price has more or less halved, closing at 229p last week, compared with more than 440p a year ago. To add to its woes, it recently revealed a £29.1m hole in its pension fund.
Although Hughes’ departure may well have been triggered by the accounting problems, ultimately it has more to do with the failure of the company’s international ambitions. Hughes joined Bulmers in April 1999 from Guinness (now Diageo), where he had spent 15 years in various positions culminating in the role of managing director of Guinness Brewing UK. Before joining Guinness, he was UK marketi
ng director for Coca-Cola. His experience of distributing and marketing international brands appealed to the Bulmer family, which still holds 50 per cent of the shares.
Faced with consolidation in the drinks industry, Bulmers had three options: to remain the biggest player in an increasingly niche cider market; to sell out; or to grow big enough to compete on the world stage, either on its own or as an equal partner with another company.
While other cider manufacturers accepted a niche role or sold up – in 1998, Bulmers’ biggest rival, Matthew Clark, was bought by US group Canandaigua (now known as Constellation Brands), Bulmers pursued a growth strategy.
One industry observer says that Interbrew’s £2.7bn purchase of Whitbread’s brewing interests in 2000 fuelled Bulmers’ international dreams. Whitbread held the brewing and distribution licensing deal for Heineken, but had to end the relationship after the takeover. Bulmers hoped to take up the reins and decided to “position itself as an attractive partner to international brands – Heineken was the main target”.
To facilitate this positioning, Bulmers splashed out £32m on distribution company Dawes the Beer Seller in April 2000. However, Heineken chose a completely different route, deciding to set up its own UK distribution and marketing company.
Meanwhile, Bulmers tried to develop cider sales in markets such as Australia, South Africa and the US. After some initial success, it was flattened by the arrival of the premium packaged spirits (PPS) sector, with brands such as Smirnoff Ice and Bacardi Breezer.
Hughes also stepped up Bulmers’ new product development programme with mixed success. Fruit-flavoured schnapps drink Sidekick has made an impact, according to observers, but they question whether it has real longevity. Bambao, a cane spirit and lime juice PPS, is now in limited distribution but has yet to prove itself and the launch of Storm – an innovative “widget-based” PPS featuring two different coloured liquids which are mixed when the bottle is opened – has been delayed because of technical difficulties. Storm is now due to arrive later this year.
Bulmers appears to be doing well with flagship brand Strongbow and premium beers San Miguel and Amstel, for which it has the UK distribution and marketing rights. But the accounting problem announced last week could be linked to promotions for these brands – one rival drinks marketer suggests that Bulmers has gone all-out for volume growth at the expense of value. The company denies this, saying Strongbow sales by volume and value have risen by nine per cent in the past year (AC Nielsen).
Strongbow now competes directly with lagers such as Stella Artois and Carling. According to AC Nielsen it is in eighth place in the overall long alcoholic drinks sector – and in fifth place in take-home sales.
According to Bulmers, the brand’s success has been driven by high-profile advertising featuring comedian Johnny Vaughan. However, Bulmers split with Vaughan in May (MW May 23), saying that, for future growth, the company needed to focus more on product attributes. He was replaced with the “Get a thirst first” campaign, featuring a group of unknowns in various comic situations.
According to AC Nielsen, Bulmers spent £2.6m on above-the-line advertising for Strongbow in the year to June 30. However, at the launch of the new ads in August, marketing director Jon Eggleton said that the company would be spending £8m above-the-line, and another £7m below-the-line – including direct marketing, sales promotions and new packaging – over the next 12 months.
Analysts and other drinks industry experts disagree over the importance of marketing to the company. Nigel Popham, drinks analyst with Teather & Greenwood, says: “Well-targeted marketing is the key to the business going forward.”
On the other hand, WestLB Panmure drinks analyst Stuart Price says: “Marketing alone can’t save Bulmers – the problems are more strategic.”
The company’s plummeting share price makes the company an attractive bid target, but potential suitors may be put off by the baggage that comes alongside core brand Strongbow. As Popham adds: “There are people who might want bits of the company – Strongbow in particular – but who would want the whole company now?”
The Bulmers’ spokesman says the family has told staff it is committed to the company and that “the ‘For Sale’ sign is definitely not up”.