Thinking Australian gives S&N an edge
Scottish & Newcastle CEO, Tony Froggatt, has been in his job for just over two years during which time the brewer has seen a significant turnaround in its fortunes. In an exclusive interview with just-drinks, the combative Australian spoke with Olly Wehring about the company's revival and his plans for the future.
A relaxed, smiling Tony Froggatt sits down to lunch. The Scottish & Newcastle CEO is here to talk about his company's strong performance in the first half of 2005. He has a lot to say - and to boast about too perhaps - so it is just as well it's a cold buffet which won't spoil by being ignored. Froggatt has been in the job since May 2003, and in that period his company has seen a turnaround in its fortunes. So how much of that has been down to the Australian?
"I think the company has always had the potential to be a great company," Frogatt tells just-drinks. "I was just lucky enough to come in at a time when all the raw elements and resources were there. They just needed to be pulled together. What we've basically done is to pull people together, to bring in new talent into the business in a leadership sense, and to mould the organisation into a more customer-consumer brand-focused one. As a bunch of aggregated companies there was no one philosophy or culture. And I still don't think we're there yet. I still think there's a lot of work to be done."
Froggatt, by his own admission, has no single recipe for success. "It would be nice to say that there was one magic bullet, but there isn't. It's a whole lot of different things you're bringing into play." He is keen to point out, however, the importance of the brands in the S&N stable to the strong overall figures the company is delivering. "Being a brewer is great and you should be very proud of it," he says, "but at the end of the day it's the brands and they need to have the quality to support them."
Looking more specifically at S&N's performance in the first six months of 2005, the poor showing in Western Europe is a concern. A weak performance from the key French market was the main reason for a 10% fall in operating profits in the region which Froggatt acknowledges is a "challenging environment". But he believes the company has enough tricks up its sleeve to wake the region.
"You could argue that the first six months of the year in the UK have not been that good, but we have done well in that environment," Froggatt says. "I'm not saying we'll be able to turn around France in the same timeframe that we're doing in the UK, because the external dynamics are more severe in France. What I can say is that beer is probably a victim of its own history. Beer has not been seen as being a very innovative category. But you can see that with some big ideas and innovation you can turn around people's perception of different drinks categories." Froggatt cites S&N's work with Strongbow cider as an example. "In a very short time, we've managed to show new young consumers that Strongbow as a brand can denote quality in terms of taste and image."
S&N is also proud of its use of the Super Chilled concept with its draught Foster's and Kronenbourg 1664 brands. "With some of the beer brands, a simple innovation like Super Chilled on Foster's has lifted its image. As a category, I believe beer has enormous potential for innovative change. We've just got to tap into that. In some ways we've done that, but there's still a lot more to be done."
Meanwhile, the company's 50-50 joint venture in Russia with Carlsberg, Baltic Beverages Holding, continues to go from strength to strength, and might be said to be propping up S&N as it struggles in other markets closer to home. "I think it would have been tougher had BBH not been around," Froggatt concedes but he considers the UK performance to be more significant. "I think the UK, which two years ago was in a real mess, is now pulling its weight and with an 11% profit growth in the first half of the year, of a business that is around 35% of the total profit, has been a bigger influencer of the results that we've seen so far than our BBH business. I would attribute a great deal of the progress thus far to the UK as much as I would to BBH."
Froggatt is also less inclined to view the competition between the major brewing groups as an acquisition race to see who can be the biggest. While S&N has made acquisitions recently, most notably in China where in June it snapped up a 19.5% stake in Chongqing Brewery Company, there are more acquisitive international brewing groups. Froggatt believes such talk is irrelevant.
"It depends if you look at league tables," he says. "How do you judge how big a business is and how successful it is? We couldn't classify ourselves as the seventh biggest brewer in the world, because Carlsberg and Coors Molson have more volume than we have. Our market capitalisation is close to double the size of theirs. Who says what number you are, and is that all it's about? Should I look at acquiring a business that I think won't provide returns just because I want to be bigger? No."
Froggatt is of the opinion that buying for buying's sake is missing the point somewhat. "I don't know whether we need to have acquisitions," he says. "I think the opportunities for acquisitions are limited anyway. Do we want to be in the States? Maybe, but at what price? Do we want to be in Asia? Certainly, strategically, Asia presents a lot of opportunities, but at what cost? If we can maintain strong positions in the markets in which we operate, do we need to be global? I can't see any benefit from it. Believe me, we look at every opportunity that comes along, and sometimes it's harder to walk away from deals than it is to do them." There was speculation that Froggatt did precisely that recently, deciding against bidding for Bavaria, though he wouldn't be drawn on the question.
Where he was less reticent, however, was with regard to the constant speculation that S&N might itself be a target for larger companies, something which brings out Froggatt's fighting qualities. "If someone wants to have a go at us and buy us," he says, "I would say good luck to them because I will try to squeeze every bit of value I can from our business. The shareholder will have a choice. They could either come with us because we have a great story to tell and a great future as a business which may not be the biggest in the world, but by God, it's profitable. Or you can take a risk with the bigger guy who sooner or later may or may not be successful. I don't think we should be intimidated by that, nor should we be seduced into thinking we need to be bigger in order to be protected."
As we start to wind things up - Froggatt's cold lunch beginning to look ever more limp - I put it to him, as an Australian, that the marketing of S&N's Foster's beer brand is stereotyping his fellow countrymen. Does this not irk him? "You've got to be able to laugh at yourself," he chuckles. "I think we've tapped into the view that Australians are happy-go-lucky with a sunny disposition, pretty outrageous in many ways and amusing. I think all the great attributes of Australia have been succinctly captured by the advertising we do. It's all fun. Some Australians I know get a bit annoyed about it, but most people take it for what it is. I also think it's a very identifiable asset that some of our competitors don't have. You can't exactly get carried away by the national characteristics of some other (beer) brands!"
It's not everyday that we here at just-drinks get the exclusive ear of the head honcho of a global brewer. But Froggatt is the kind of CEO who wants to engage, and wants to communicate directly how he thinks things should be. In other words, the former Cinzano and Seagram man is happy to talk candidly without ducking awkward questions. Just like most straight-talking Australians, then.
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