The just-drinks interview - AG Barr
In this month's just-drinks interview, Roger White, chief executive of the Scottish soft drinks producer AG Barr, spoke with Annette Farr about the company's iconic brand Irn-Bru, which has bucked the downward trend in the UK carbonates market, and the company's recent restructuring.
The run-up to Christmas is traditionally a busy time for the soft drinks industry, but more so this year for AG Barr, the UK's leading independent manufacturer of branded carbonated soft drinks, as the final pieces of a major restructuring 'jigsaw' fall into place.
"We are closing a number of sites, putting in new systems, building a new canning line and in the late stages of closing our Atherton site," says CEO Roger White. "We are squeezing in a lot of activity in a relatively short period of time."
White joined the company just over four years ago, attracted by the challenge of running one of Scotland's most iconic businesses. "It was," he says, "a great opportunity." Since then, Barr has not only expanded its portfolio of drinks addressing what White refers to as "the challenge of changing consumer preferences", but has also undergone a significant asset restructuring exercise.
The company's flagship brand is the carbonated drink Irn-Bru. Despite an overall volume decline of some 3% in carbonates in the UK, Irn-Bru has bucked the trend. The latest half-year figures show that sales increased by 3%, assisted by the launch of the energy variant Irn-Bru 32 (32 referring to the number of ingredients used).
So what lies behind Irn-Bru's success? "There are two fundamental points," White says. "First, this is a brand that is over 100 years old, benefiting from yearly ongoing investment behind its development. It's very long standing. And second, it's a unique product, well differentiated from many other carbonates and soft drinks. My personal opinion is that it is a fantastic product and it tastes great."
He adds: "The carbonates market has had a more testing time of late. We still believe our business in carbonates has the opportunity to grow and are proud of our carbonate brands."
But Tizer, equally old and revered (it was launched in 1929) has been a casualty of the carbonates backlash, conspicuously not mentioned in Barr's interim statement. Although not in a position to brief outside, White did say "we want to put Tizer back on a decent footing and the brand will be relaunched next year".
Product innovation has, however, been reflected in the encouraging first-half figures issued at the end of September which showed that turnover had increased by 8.9% to GBP72.2m (US$13.7m) and profit before taxation had risen by 8.2% to GBP9.4m. Sales of Irn-Bru 32 have exceeded initial expectations.
The acquisition of Strathmore Mineral Water is particularly significant. It brings into the portfolio a market-leading brand from the buoyant water category which now represents a 15% share of the total UK soft drinks market, according to market researcher Zenith International. Bought in May this year, the business is now fully integrated.
An updated schools product range is now available. "Legislation in the UK as a whole is quite a moveable feast," White observes, "but there have been some definitive steps on what you can sell in schools such as fruit juice, water and milk. In Scotland, we are still working with the Scottish Executive to come up with the right plan."
Barr's school offering comprises the St Clement's brand - a blend of fruit juice and still and sparkling waters - along with Strathmore mineral water products. St Clements still fruit drinks are reported to have grown by 250% in the first half while Orangina, relaunched earlier this year, has grown by 14% in value.
Commenting on current health and wellness issues, White says: "They are already having a material impact on the market and we can see consumers' preferences and outlooks changing. My job is to determine what those changes are and try to meet them with a range of products. I hope we can match what the consumers want and continue to grow our business.
Does this mean further acquisitions? "We have been very transparent about this. We are keen to grow both organically and through acquisition, as we did with Strathmore, in order to meet consumer expectations."
Overseas markets are also growing. "We've done good business in Russia with Irn-Bru and are now rolling the brand out in certain parts of Poland. We have started doing some work in Australia and that is going reasonably well, and there are also a number of other areas we are looking at. We also do well in the traditional tourist markets of Spain and Iberian territories like The Canary Islands."
Regarding brand investment in 2007, White says: "We continue to spend incrementally more each year on the development of our brands and I see no reason why that isn't going to happen next year."
But what is concentrating White's mind now is completion of the asset restructuring programme. "Two and a half years ago we started looking at our own asset base and determining what we felt was needed for the future both in terms of capacity and efficiency," he explains. "It became clear in Scotland that we had too many individual sites and no stock warehousing on site at our main production facility. It was this combination of disparate units and no on-site storage that led us to consolidate all operations under one roof - Cumbernauld - and, at the same time, move the head office across."
The facility features two PET lines and a returnable glass line, which is unusual nowadays. A canning line is currently being installed. The target for completion is the 2006 year end which White says "is entirely realistic though it is a day by day process".
So a very busy time, not helped, perhaps, by a recent Strathmore mineral water product recall. White, however, did not regard this as a major issue. "Although one Scottish newspaper reported it, it really wasn't a story," he says. "We consulted fully with the FSA, and it was dealt with in the appropriate manner."
White also plays a flat bat to questions regarding persistent rumours that Barr is open to a bid from a multinational. "I have not heard any persistent rumours," he says, adding that the only newspaper article he had seen on the matter was "ridiculous".
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