ANALYSIS: Can HP Bulmer bounce back?

As the drinks giant reels from financial misfortune, Tania Mason looks at how Bulmers' setback is impacting its brands.

HP Bulmer's admission that it will eventually scrap Bambao, the male-targeted cachaca-based spirit drink that launched just three months ago, is just the latest in a series of catastrophic blows for the Hereford-based drinks company.

On top of the £3.8m 'black hole' in its accounts, the shock departures of its chief executive and finance director, its fifth profits warning in a year and 80 more job cuts announced last week, new product development is to be the next casualty in Bulmers' seemingly unending catalogue of woe.

Bulmers insists that Storm, its much-vaunted two-coloured alcopop, will still proceed to a test market. But it concedes that its NPD programme has been scaled back and its marketing will centre on established brands such as Strongbow and San Miguel.

Spokesman George Thomas says the firm cannot afford to plough money into high-risk launches, or persist with products that are not proving successful.

"We launched Bambao three months ago. It is on sale and remains on sale, but yes, there is a big question mark over it and it would be naive to say it has a long-term future."

He says the product was a "brave attempt" to target a new, slightly older male profile; most premium-packaged spirits are aimed at women. "But the drinks marketplace is difficult, there are always lots of new products coming out, some will catch the imagination of the target market and some won't."

Cutting back

The decision to slash its innovation programme is a U-turn for Bulmers.

NPD has been a major part of its UK strategy for the past couple of years under now-departed chief executive Mike Hughes.

In 2001 it brought two new products to market: Strongbow Spice, which Thomas concedes was an "utter failure"; and Sidekick, the schnapps-based shot drink widely credited as the most successful alcohol launch of the year. Sixty million units have been sold to date.

But now, with Bulmers under pressure to reduce its borrowings, it is "not in a position to take risks", says Thomas. He adds it will persist with the launch of Storm, its first vodka-based product. But Jon Eggleton, Bulmers' marketing director, says Storm would be put into a "simulated test market" over the next few weeks, the results of which would determine whether it would proceed to launch.

Additionally, neither Thomas or Eggleton would deny speculation that the firm is considering selling the patent for Storm's widget technology, which creates the two-colour effect. "All options are being considered," says Thomas. "But we have surplus land here in Hereford we could sell, and we are looking first at assets that aren't necessary to the business."

He added that no strategy would be set in place until a chief executive is appointed.

The firm has pledged not to curtail any activity already planned for its established brands. But even this assurance should be considered in light of the fact that Strongbow's TV advertising is nearly over for this year, with no repeat burst planned until next spring. Thomas says it has always been Bulmers' policy not to advertise on TV in the weeks before Christmas.

But a narrower focus on its core brands might be just the tonic the company needs at present, given that San Miguel is growing by 46% and Strongbow by 13%. Other distractions have already been removed, such as the licence to market Red Stripe, which returned to its UK owner, Charles Wells Brewery, two months ago.

Bulmers still has the UK licence to distribute the premium, bottled version of Heineken-owned Amstel. But that relationship must also be viewed as tenuous in light of Bulmers' problems and Heineken's decision to launch a draught version of the Continental-quality standard Amstel in UK style bars.

Heineken UK marketing director Leslie Meredith says she is not reviewing the partnership yet, but watching the situation closely. "It requested some time to get its own internal position sorted out, and we are not putting any external pressure on it."

So how did Bulmers wind up in such a mess? Insiders privately acknowledge that the ambitious growth plans of Hughes, who joined as chief executive in January 1998 after an illustrious 15-year stint at Guinness, unwittingly set the company on its disaster course. Hughes, a former Coca-Cola marketing chief, wanted to turn the cider maker into a global enterprise, and dreamed of building Strongbow into an international brand with the same status as the black stuff he used to preside over.

So he embarked on expensive forays into South Africa and the US, buying up local cider firms and launching Bulmers' own brands into the local markets.

Both ventures flopped. In South Africa, the local producers had the market so tightly sewn up Bulmers simply couldn't break in. And in the US, a deluge of ready-to-drink brands swept the market soon after Bulmer America launched. The company has now decided to pull out of South Africa and significantly downsize its US operation.

Hughes also had great plans for Bulmers in its UK heartland, aiming to transform it from a cider specialist into a powerful force in the drinks market. In April 2000 he spent £32m buying beer wholesaler Dawes' The Beer Seller. The plan was to become the independent representative for all the beer brands that were number two or three in their markets, but weren't part of a portfolio, such as Budweiser, Holsten, and particularly Heineken.

One source says Hughes was keen to take on Heineken after the expiry of its contract with Whitbread, but wanted more control of the brand and its marketing than Heineken was willing to give. Now, Bulmers still owns The Beer Seller, but is trying to rationalise the number of brands it sells through it.

The failure of these ambitious UK plans, the write-offs that will inevitably have to be made on its international business, and huge investments in NPD has left what was a solidly profitable firm in serious financial trouble.

Yet it owns one of the top ten drinks brands in Strongbow and still has a solid UK business. So can Bulmers find a way out of its predicament?

Rescue plan

Frazer Thompson, managing director of New Wave Wines and former Heineken marketer, suggests Bulmers has taken its eye off the ball by going too far beyond its core cider heritage and into other drinks. Sources close to the Bulmer family, which owns around 50% of the firm, say some of the family privately agree, and feel the business should refocus as a manufacturer of quality speciality ciders.

Thompson adds: "It would be an absolute tragedy if Bulmers went down, but I fear the cider industry is another great British institution in danger of going tits up."

Predictably, Bulmers' Thomas says there is "absolutely no question" of the business going into administration or up for sale. But as its share price plummeted from £4.40 a year ago to around £1.30 last week, one possibility is a hostile takeover bid. Bulmers has been staunchly independent in the past, but there is now speculation that it may not survive on its own.

"We have made a mess and have to clear it up," says Thomas. "We have been rocked, and hard. We need to stabilise and staunch the bleeding. But we are profitable, have a good cash position and have exceptionally strong brands. Those three things make it a sound business."

Sources say Bulmers hopes to appoint a chief executive in time to start 2003 with a clean slate. Last week it announced the appointment of turnaround expert John Darlington, who helped save the Millennium Dome from early closure, as a special adviser to the board. Bulmers shareholders will be crossing their fingers that their firm doesn't end up as much of a laughing stock as that institution.

TIMETABLE OF BULMERS' DECLINE

Date Event

January 1998 Mike Hughes joins as chief executive from Guinness

and announces strategy to turn the £180m

company into a global drinks group worth £1bn

April 2000 Buys Dawes' The Beer Seller

March 2001 Sidekick launches

August 2001 Strongbow Spice launches

December 2001 Half-year pre-tax profits fall 17.8% to £13.5m

Spring 2002 Axes Strongbow Spice

July 2002 Promotes marketing director Jon Eggleton to the

board, to have worldwide responsibility for all

brands

July 2002 Full-year pre-tax profits fall by 26% to pounds

21.1m

August 2002 Biggest-ever marketing push for Strongbow launched,

with new advertising without Johnny Vaughan

August 2002 Bambao launches

September 2002 £3.8m "unaccrued promotional costs" revealed

September 2002 Chief executive Mike Hughes resigns and finance

director Alan Flockhart is sacked

October 14, 2002 Bulmers issues fifth profits warning in 11 months,

sending shares crashing by a third to 126.5p

October 16, 2002 Hires turnaround expert John Darlington

October 2002 Bulmers admits it will eventually scrap Bambao

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