Pot of Gould – Private patience
It is the results season, so attention is focused on the major public drinks corporations as they give their shareholders the good or bad news. But Patience Gould believes that in an industry where taking a long-term view is vital, private companies have an important advantage over their publicly-owned counterparts.
With the annual results season well and truly underway, it's quite a pertinent time to consider the pros and cons of being a public company. For the likes of Diageo and French multinational Pernod Ricard this is a decidedly nail-biting time of the year as they release their annual figures to a hungry set of shareholders.
Indeed, the pressures on publicly-quoted companies in the drinks sector in particular are such that it leaves one asking whether public ownership is actually a good thing for drinks producers or for the industry as a whole.
For starters, the financial hullabaloo comes every 12 months and performance is scrutinised from every angle. Any signs of decline are increasingly frowned upon; whether it stems from rising raw material costs or simply tougher market conditions, there is a growing level of intolerance, which in turn leads to short-term thinking. A week may be a long time in politics, but a year is a short time in the drinks industry, particularly when you take into consideration that producing Scotch whisky takes three years of ageing before it can even come to market - and typically a lot longer for deluxe blends and single malts.
"The single most important advantage of being a private company is flexibility," says one industry observer. "In a private company a bad year can be coped with when you can see that in two or three years' time things will get better and you will be running all the way to the bank. But for the publicly-quoted company, the warts and all will be covered in the press, which in turn of course will hit the share price."
The whole question of private versus public company status hit the headlines big time when Edrington acquired the then Highland Distillers, bringing the likes of The Famous Grouse and The Macallan into its stable. The chieftains of the day, Edrington's Ian Good and Highland's Brian Ivory, were in opposite camps. Good was for private while Ivory wanted to go public, as he liked the cut and thrust of the City. But it was Highland's lacklustre though solid performance which sparked the acquisition in the first place.
Good prevailed, famously saying: "We are passionate about our independence and that allows us to take a long-term view to building our brands." Ivory, however, remained true to his belief in the public ethos, and stepped down. Since then, the Edrington Group has gone from strength to strength and its focus on its brands has been unerring.
The family-owned and run William Grant would agree: "The key benefit from a business perspective of being privately-owned is the ability to plan and build brands for the long term without the short-term pressures of external shareholders. As the production of Scotch, and particularly single malts, is a long-term business, it is no surprise that the most successful single malt worldwide [The Glenfiddich] is owned by a private company."
Indeed, on paper it would seem that the private company is better suited to producing and marketing Scotch, particularly single malts, as the brand building is all to do with seeding and getting production in line with growing demand. Arguably, The Macallan would not be the success it is today if it had started life in a public portfolio because it would not have had the necessary critical mass in the early days to justify investment. Diageo has been successful with its Classic Malts - but they remain relatively small players in the single malt arena largely due to constraints on stocks.
It's the same when it comes to new brand and product development. Take William Grant's launch of Hendrick's Gin, which has proved a growing success for the company because it can take the long-term approach. Diageo tried with its Gordon's Distillers Cut some three years ago - but where is it now?
The pressure to get results dampens resolve, and deters major companies from launching something completely new and waiting for it to take root and flourish - which requires patience. That is why the emphasis tends to be on re-launches and product extensions rather than completely new brand launches which are as rare as hen's teeth.
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