just the Answer – Stock Spirit's CEO
This month, just-drinks speaks to the CEO of Stock Spirits, Chris Heath
It is exactly one year today (2 November) since just-drinks reported on a change of CEO at Stock Spirits. To celebrate his first anniversary in the role, Chris Heath speaks to just-drinks about the company's business model, its portfolio and its future plans for growth.
just-drinks: What is the ownership structure for Stock Spirits and where does the company operate?
Chris Heath: It's very simple: Oaktree Capital are majority shareholders, and Stock's management own the rest. We don't declare the percentages, though.
When I joined the company in late-2007, it was pretty clear that Oaktree was serious about its 'buy-and-build' strategy across Europe. We talked about the number of opportunities we'd seen where Central Europe was kind of neglected by the global players - it was in the 'bit-too-difficult' drawer. There were also plenty of growth opportunities elsewhere so the global players tended to pursue those. So, we thought that, if there was one part of the world that is under-served by the major players, then Central Europe is probably it.
Today, all of our production comes from Central Europe, and around 90% of our sales come from this region.
j-d: How big a concern is it to have such a high concentration of your activity in one particular area?
CH: Our international division, the team for which was only completed in the middle of 2009, has only been in place for just over a year. The businesses that Stock Spirits bought didn't really do much exporting at all outside of the region. Today, we sell to about 30 different countries – most of those contracts have only been put in place in the last one to two years.
j-d: And, which new markets excite you the most?
CH: We've got new ventures in India, Russia and Ukraine. We're, hopefully, about to get one in China. As you know, if one of those takes off, then it can be quite significant for you. Meanwhile, we're growing fast in markets like Spain and Germany, even if it might be from a zero base or a fairly small base.
j-d: Back to Central Europe, how concerned are you by the threat of authorities getting involved in duty hikes to kerb irresponsible drinking?
The CEO of Stock Spirits, Chris Heath
CH: Different governments are responding in different ways to alcoholism and such issues. We support responsible drinking, so anything that helps people consume alcohol more responsibly is a good thing. We're looking to produce high quality products at a reasonable price, while the governments are looking to cut out grey or black market activity. The more they do on that front, we see it as an opportunity.
j-d: What presence do you have in Russia?
CH: It's very small, at the moment. We just haven't got around to it. We focused initially on the markets that we had production presence in, and invested in plant and people, then looked to develop new products there. The heart of our growth has been in our core markets. The international markets was always seen as a medium- to longer-term strategy.
j-d: What price category does Stock Spirits focus on?
CH: In most markets, we would aim at anything from standard price up. We do have some economy brands for historical reasons, but even with those we're looking to introduce more premium variants. Getting our standard right is critical because that's where most of the volume is. Once we've got that level where we want it to be, we look to the premium and super-premium segments.
Because we have presence on the ground in these markets, we understand the consumers very well. We can see what the global brands are trying to do, and we can pitch it close to what they're trying to do but adapt it a little bit for the local market – that works extremely well.
j-d: About six months ago, you said that Oaktree had invested around EUR75m (US$105.2m) in Stock over the last two years. Is that level of investment sustainable?
CH: In this environment, everybody's looking for a good return on their investment. Everything we've put in front of the Oaktree management has been supported. It helps to have a good track record of delivering a return. We've identified gaps across our portfolio and we're launching new products or tailoring existing products into those gaps. That will eventually run out, but part of our strategy is to acquire other businesses or launch our own companies in other markets. There is quite a lot of opportunity and Oaktree have backed us every time so far – long may that continue.
j-d: Vodka accounts for about two-thirds of your total business. Are there any portfolio gaps that cause concern?
CH: We don't really do much in whisk(e)y, but that's a conscious decision: we think that category is well-served by people with deep pockets investing a lot of money over a lot of years. If we get into that category, then we'd have to tread very carefully, because it's fiercely competitive.
j-d: You recently stepped away from acquiring Ukrainian vodka producer Nemiroff. What made you leave the room?
CH: We are still interested in Ukraine. We like the Nemiroff brand, we think it has potential. But, it came down to simple economics at the end of the day. We couldn't agree on a valuation, and we won't overpay.
j-d: How big is the acquisition warchest?
CH: As big as it needs to be, really. When we were looking at Nemiroff, we were approached by lots of potential financiers as well as Oaktree to say that they'd like a piece of it if we acquired it – I think that's pretty good in today's economic climate.
j-d: There has been recent speculation suggesting that Oaktree will launch an IPO for Stock Spirits. How likely is this?
CH: We are focussing on continuing to grow the business and have not made any decisions about exit/IPO yet.
j-d: But Oaktree Capital is a private equity firm - surely, then, an IPO or divestment of Stock Spirits is a case of when and not if?
CH: Yes, that is the way private equity works.
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