The just-drinks Interview - Cobra Beer's founder
On the six-month anniversary of Cobra Beer's rescue from collapse in the UK by Molson Coors, just-drinks deputy editor Chris Mercer spoke with Cobra founder Lord Karan Bilimoria about the dark days and why he feels that the brand is poised for future growth.
Lord Bilimoria is nothing if not ambitious. Nearly six months since his 20-year-old Cobra Beer business was saved from the dustbin of drinks industry history by a pre-packaged administration deal with Molson Coors, Bilimoria is talking up the brand's "global potential".
Bilimoria is also seeking to raise GBP4.5m from investors to complete the purchase of a brewery that the company has been operating in north-east India since 2008.
To prevent confusion, there are now two Cobras. There is the Cobra Beer Partnership in the UK between Molson Coors and Lord Bilimoria, which is 50.1% controlled by Molson, and the India-based business, which Bilimoria still controls.
"The Partnership has enormous potential," says Bilimoria, adding that he is as committed to the brand's UK arm as ever. "I have a long-term commitment to chairing the joint-venture."
Molson UK's CEO, Mark Hunter, said earlier this year that Cobra opens up "significant opportunities" for Molson Coors in the country. Bilimoria believes the brewer is backing words with actions. "We've got a dedicated team, with Adrian [Davey, MD of Cobra Beer Partnership] who has more than 20 years of experience in the sector, as well as a marketing director and a brand director," says the life member of the House of Lords, the upper house in the UK Parliament.
"Without that, then you could say that we might get lost in a big company. But it's that focus, with me fully engaged, that's going to be important, as well as financial backing from Molson, who have said they will do whatever it takes." Indeed, Cobra will benefit from a GBP10m (US$16.6m) marketing spend over the next three years.
In a moment of reflection, Bilimoria turns apologetic over recent events for his firm. "It is very exciting, but obviously it has been an awful experience," he says, referring to Cobra's virtual collapse in May. It is believed unsecured creditors lost more than GBP70m. "I'm going to do my best to repay creditors," he says.
Lord Karan Bilimoria, founder of Cobra Beer
Bilimoria had been attempting to sell part or all of Cobra for at least a year prior to the Molson deal. Industry sources have told just-drinks that Diageo turned down the option of taking a 30% stake in Cobra, while SABMiller refused to buy the business outright due to a disagreement over value. Slowly, yet surely, all avenues appeared to close.
"In order to have a growth business we knew we needed to get critical mass," says Bilimoria, describing Cobra's journey to the brink. "We were always building sales and always sacrificing the bottom line to do that.
"When we took on funding from one of the world's largest hedge funds three years ago, we hired a blue chip management team and this eventually required us to raise further funding. Then, with the credit crunch, the funding dried up. After the collapse of Lehman Brothers, credit didn't just dry up, but growth was not something investors were interested in. Cash not only became king, it became emperor."
He describes the deal with Molson, done for around GBP14m, as the "least worst option" under the circumstances. "We were very fortunate that in the end, although it was in the worst possible way, we survived."
Meanwhile, Cobra's volume sales in the UK performed well, showing 21% growth for the six months to the end of January this year, against an 8% fall in total UK beer market volumes in the final three months.
Can Molson help Cobra to turn a profit? "Absolutely," argues Bilimoria. "It should be enough to settle with my creditors, as well as provide some upside for shareholders."
He sees potential for Cobra to expand from its sales base of Indian restaurants, particularly under the stewardship of Davey, who used to head up Coors' off-trade business.
"We are present in 95% of Indian restaurants and we have 50% market share. There is huge potential in the supermarkets and every pub serves at least one ethnic dish," says Bilimoria, who defines ethnic as being Oriental, Indian and Caribbean food.
Ethnic food sales are expected to reach GBP1.6bn in the UK by 2013, according to Molson, which has said it plans to use Cobra along with its distribution rights for Singha beer to expand in this market.
Bilimoria also has global ambitions for the Partnership. "There are 45 countries that we export to," he says. "Canada, because of Molson Coor's strong position there, would be a natural progression. We are also increasing in Scandinavia and Germany."
Over in India, meanwhile, Cobra has around a 1% share of a market many believe is bound for strong growth.
"The beer market is still very tiny in absolute terms," says Bilimoria. "But, 30 years ago when China began its economic reforms, per capita beer consumption was at 0.5 litres. Today, it is 30 litres. That's exactly what is going to happen in India."
Aside from its brewery in the north, Cobra operates under eight contract brewing agreements in the country, allowing it to be present in retail outlets and high-end hotels in some of the key states, such as Rajasthan.
"Beer should be the national drink of India, if it gets more affordable," says Bilimoria, who was born in India and serves as president of the UK India Business Council.
He says Indians will increasingly switch from brown spirits to beer. "The Indian beer market is split between 75% strong beers (above 5% abv), such as King Cobra, and 25% mild beers. Eventually this will shift more to mild. People will move from spirits to strong beer and then on to mild beer, as they come to appreciate the refreshment quality of beer and not only the alcohol content."
Like all entrepreneurs, Lord Bilimoria exists in a world where an empty glass is an opportunity to buy another drink. If optimism is translated into hard profits, Cobra would be a world beater by now. That said, Bilimoria's argument on India makes sense and the brand's future certainly looks a lot brighter in the UK under the wing of Molson Coors.
On the six-month anniversary of Cobra Beer's rescue from collapse in the UK by Molson Coors, just-drinks deputy editor Chris Mercer spoke with Cobra founder Lord Karan Bilimoria about the dark days an...
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