Cider is one of the few growth areas in the drinks market. It has developed without a hiccup for 30 years. Drinkers may be supping less beer but cider goes from strength to strength.
It is surprising, therefore, to find rotten apples in the cider barrel. Companies such as Taunton and Matthew Clark-owned Gaymer’s have been unable to reap the full benefits of this potentially profitable sector.
Market leader HP Bulmer’s performance has bobbed along in recent years, despite a round of savage price cutting in the “off-trade” – off-licences and supermarkets. The company is the dominant player, and some observers say its Strongbow is the one true cider brand. Bulmer has managed to create some strong brands, keeping a steady stream of new premium products flowing into the market.
But, as a whole, the cider industry seems to be more of a commodity market than one where brands play an important part.
Former marketing director of Merrydown David King says: “A lot of the growth in cider volume has come through the cheap white cider sector, which is high in strength, though it does not have premium brand values. It largely comprises own-label and tertiary brands. This caters for the ‘park bench market’ – thirty per cent of cider is drunk by seven per cent of its customers.”
Given the state of the market, it is little surprise that Matthew Clark has targeted Taunton with a 271m takeover bid. “It is a brilliant deal for Matthew Clark,” says one City analyst. “Only Bulmer could get such great synergies from taking over Taunton..”
Assuming the deal goes ahead, Matthew Clark Taunton – as the new venture would be called – will have a market share of about 45 per cent, compared with Bulmer’s 46 per cent. But is size enough to take on a player of Bulmer’s strengths?
The drawback of being an acquisitive brand owner is that you end up with an untidy portfolio of brands. Welding together different companies always leaves you with an strange array of products. At some point, you’re going to have to get your house in order.
Nowhere is this more true than in the case of Matthew Clark – it has 300 branded lines and 200 own-labels. Taunton will bring in another 60 brand lines and 200 own-labels. Five years ago, Matthew Clark was a sleepy little company with a few wine and sherry brands to its name. Then it hit the acquisition trail: it snapped up wine company Stowells of Chelsea, and bought Gaymer’s – which was crippled by the costly relaunch of Babycham.
The pace of its acquisition programme is so fast that observers find it hard to determine how well it has been doing. There have scarcely been two years where like can be compared with like.
Matthew Clark is famed for “trading” products rather than building brands. It has a reputation for slashing ad budgets and milking brands for cash through aggressive trade promotions. It has succeeded in developing the products it has acquired, such as Strathmore Mineral Water and high-strength K Cider – which came with the Gaymer portfolio. The mineral water brand has been extended with new flavours, and, claims the company, is now a top-seller in its sector.
One observer says: “Matthew Clark’s new business will have a much more cluttered portfolio than HP Bulmer, which has been designed rather than acquired.”
There has been plenty of industry speculation about whether Matthew Clark will take an axe to Taunton’s ad budget.
Matthew Clark managing director Kevin Philp, who will be commercial director at Matthew Clark Taunton, says: “We will not stop investing in the brands; we may even find that investment increases. We will refocus and look at the whole marketing spend to decide which are the leading brands between, for example, Dry Blackthorn and Gaymer’s Olde English in the mainstream market or Diamond White and K at the premium end.”
The big brands that will come with the takeover are likely to have their spends untouched. Lager Miller Genuine Draft, which has just launched an ad campaign through TBWA, is likely to be safe. And Dry Blackthorn would be unable to compete with Bulmer’s Strongbow without a sizeable ad budget. Instead, observers expect Matthew Clark Taunton to milk the Olde English brand through the take-home trade and funnel ad spend into Dry Blackthorn, considered neglected by Taunton.
Philp denies that the disparate collection of brands will be heavily rationalised. The review that will take place over the next three months is intended to single out a “mother” brand.
The acquisition unites two companies with questionable records in innovation. Taunton has had its misadventures in new product development. The company is still recovering from its Red Rock initiative of 1989, when it tried to launch a cider that could take on premium lagers through being less gassy than the average cider, and without the after-taste.
The ad campaign through GGT, which featured Leslie Nielsen, was acclaimed. But many felt that the product failed to match up. “Nice ad, shame about the product,” says one source. “They spent a fortune on Red Rock, but the ad budget has petered out.”
Last autumn, the company axed its new product development department and plumped for brand extensions (MW October 28, 1994). It has become distracted in two areas – extending the Diamond White brand through developing Ice and Zest variations.
Some analysts are scathing about Taunton’s attempts to cope with innovation in a cut-throat take-home trade. They predict the Matthew Clark takeover will give Taunton brands more focus and that they will benefit from being part of a larger portfolio.
Matthew Clark Taunton will need to support the brands if it is to use its new size to take on Bulmer. Given the paucity of strong cider products, distribution is all-important to the brand owners. Taunton – previously a joint venture between Scottish & Newcastle, Courage and Bass – was bought out by its management and has failed to diversify much beyond its former companies’ pub outlets. “Taunton has been too reliant on Diamond White and neglected key brands such as Dry Blackthorn. Bulmer’s success has been in maintaining the impetus in its core brands through pubs and bars,” says one analyst.
But Matthew Clark Taunton must do more than throw its weight behind Taunton brands. It must come up with fresh ideas to stimulate the market into the next century. The potential for that growth, if handled carefully, is certainly there. As the volume of beer sold through pubs and bars declines, manufacturers are looking for alternative drinks to tempt the public. Cider, cider variants, wine, mixed spirits and the new breed of alcoholic fruit drinks are all taking market share from lager and, to a lesser extent ales. These new products cater for the growing army of women and younger drinkers who have turned away from traditional beers, and are none too keen on the taste of alcohol anyway.
But many of the new product areas are seen as short-term crazes,. The creation of new categories will be a continuous process through the Nineties, and getting it right will be all-important.
So what are the prospects of a new product development department being resurrected by the new venture? Philp says: “I would prefer to have category experts who know their own fields and suggest when new products are necessary, rather than have a separate NPD department. But we will be very active in developing new products.”
The success of the merger will hinge on how the combined company selects its key brands. And how far it is prepared to push second-line brands on price. The ability to come up with new products will be a crucial test of whether this is a marriage of convenience or one that will build on the growing cider market. v