Virgin cola Concentrates on Becoming More Available
Based at the Lough Egish Food Park in County Monaghan, the new 12,600 sq ft cola concentrate facility commenced production in June. The plant is highly automated, staffed by just six people and is producing in the region of 6,000 units of concentrate annually - each unit is capable of making 6,000 ready to drink litres of cola.
A unit of concentrate for Virgin Cola comprises two equal parts - a part one flavour element and a part two acidulant or colour component - resulting in 15.14 litres of combined concentrate. This is then added into the syrup at the manufacturing stage, with 15.14 litres of combined concentrate creating 1,000 litres of syrup which in turn is used to produce 6,000 litres of cola drinks.
Features of the Concentrate Plant
The manufacture of concentrate basically involves blending, homogenisation, filtration and filling operations. Having studied other concentrate manufacturing operations globally, Virgin has ensured that the Lough Egish plant is one of the most advanced of its kind in the world. "All of the learning points from other concentrate operations have been brought together to 'design out' the flaws and difficulties of manufacturing concentrate," remarks Steve Brookfield, concentrate plant general manager. "The technology is such that a team of six people can effectively manage the operation. This is achieved essentially by instrumentation and process control through PLC and through a SCADA management interface."
Rapidly Expanding Soft Drinks Business
The Irish concentrate operation - Virgin Cola Manufacturing Partnership - will supply Virgin Cola's rapidly expanding soft drinks business both in the UK and abroad. In addition to the UK, where Virgin Cola recently achieved its highest ever market share, the company has established a presence in 11 other territories around the world and is about to be launched in three more - Bangladesh, Algeria and Canada. The biggest markets are the UK, which still accounts for nearly 70% of sales, and France.
Virgin has established a network of bottlers/canners either operating under contract or on a franchise arrangement to produce its soft drinks. For the UK market, the cola concentrate produced in Ireland is shipped to four production sites - the Cott plant in Pontefract, two Princes Soft Drinks' factories located in Glasgow and West Yorkshire, and Ben Shaws in Huddersfield (which handles drinks dispensing for the on-trade). All UK soft drinks manufacture is carried out under contract. However, in overseas markets Virgin is seeking to build up a system of franchisees in addition to bottling/canning under contract where appropriate.
The past year has witnessed major growth by Virgin Cola as the Richard Branson company substantially increased it sales and marketing efforts with an imaginative and sustained campaign throughout the summer. Volume sales will reach over 250 million litres in 1999 with a wholesale turnover of about £140 million - up by over 50% on the previous year. "Our plan is to double sales next year to about 500 million litres," says Paul Steele, managing director of Virgin Cola.
In the UK, Virgin was the fastest growing cola during the summer with volumes up over 25% and in September achieved its highest ever market share of 8.1% of the Nielsen grocery segment (covering all the major multiples and the multiple impulse channels), according to Paul Steele. "That is based on a distribution level of 58%, so if you gross that up on total availability then you can see we have a reasonable level of share," he remarks. "So in our most established market we are still managing to make headway."
The surge in sales in the UK was largely due to Virgin's intensified marketing and advertising efforts during the summer. A heavy weight campaign, using the theme "From Virgin with Love" and which introduced the 'Roller Cola Girl' cartoon character as well as the 'DJ in the Can' music road show, backed up by advertising, sampling and promotional activity, along with distribution drives in the impulse and convenience channels, was well choreographed to attain maximum customer and trade impact. "We invested between £8 and £10 million this year - that is more than double the spend in the previous year," says Paul Steele.
When Virgin Cola was first launched five years ago as a joint venture with Cott, building up sufficient distribution in a UK soft drinks market dominated by two companies proved to be problematic. For about the first 18 months, the major distribution channel for Virgin Cola was Tesco, and it was also carried by Iceland. However, the retail customer base has since been steadily broadened and Virgin Cola now supplies all of the major multiples with the exception of Sainsbury, and also goes into the cash and carry trade through Booker.
Virgin has also been seeking to strengthen distribution in both the impulse and on-trade sectors, which have been two obvious areas of weakness in the past. "We have put a lot of work this year into expanding our distribution into the impulse and convenience channels, and we are currently working on a number of projects to expand our presence in the on-premise market," Paul Steele comments. Virgin has teamed up with Ben Shaw, which handles its dispense business, and is also working with Scottish & Newcastle and negotiating with other major on-trade operators in order to expand its distribution into the mainstream pub and restaurant markets.
Virgin Cola also reported a highly successful year in France, its second biggest market, where it launched Virgin Pulp - an orange drink with added pulp, which competes in the same segment as Orangina. "Within just three months we have captured about 10% of Orangina's volume, where the two products are stocked side by side," Paul Steele contends. Virgin has also continued to grow its cola volumes in France. "In the 1.5 litre package, which is the largest size bottle in France, we have outsold Pepsi for eight out of the last ten months in the supermarket and hypermarket channel," he adds. Virgin's 1.5 litres bottle is based on the distinctively shaped 'Pammy' or 'Curvy' design.
This basic format has been developed even further in markets such as Italy and South Africa where Virgin Colours has been launched. Virgin Colours is a range of different flavoured carbonates sold in colour coded 1.5 litre bottles - Virgin Red is the regular cola, Virgin Orange is an orange drink, Virgin Blue is a lemon and lime product, Virgin Pink is a pink grapefruit variant and Virgin Green is a bitter orange. Two ice tea products complement the offering.
"Consumption patterns today are broadening," says Paul Steele. "We are aligning ourselves to satisfy the changing demands of the market-place and while we will continue to push the cola message, we are also ready to offer what ever products consumers desire. So we have been looking at other areas that we are not currently satisfying, such as the water sector and the juice-based drinks sector, and we are working on these for next year."
Decision to Move into Concentrate Production
But why did Virgin decide to go into cola concentrate production? Obviously the split with Cott, which sold its 50% stake in Virgin Cola to Virgin Group earlier in the year, changed the company's circumstances, but Paul Steele points out that the decision had been made prior to this. "In my view, if we are serious about expanding worldwide, which we are, then we had to go into the concentrate manufacturing business. We have been signing up long-term franchise agreements in numerous markets, and it is our responsibility to provide a brand name and a high quality product." The Virgin Cola managing director continues: "Therefore it was necessary for us to be in direct control of the production of these high quality products and to ensure that we maintain the highest possible standards. Controlling that in-house is a vital part of our strategy."
Virgin has an arrangement with the US-based Beverage Research Centre, which specialises in the development and production of recipes and flavour concentrates for soft drinks manufacturers. "When Virgin first commenced its cola operations it used the expertise of the Beverage Research Centre to develop the recipes that we still use today," explains Steve Brookfield. "We still have an arrangement with the BRC to produce ingredients for us, principally the primary emulsion for the emulsion used in the flavour part of our cola concentrates." However, as sales of Virgin Cola continued to expand and new international markets were entered, especially in Europe, the logistics of shipping cola concentrate from the US to a growing number of bottlers/canners became increasingly arduous.
Bringing concentrate manufacturing in-house is not only more efficient but will allow Virgin to reduce the lead time in matching production with sales while affording it greater flexibility in reacting swiftly to changing market demands. "So the primary drivers behind the decision were control and unit cost," states Steve Brookfield.
Because of the very attractive package of financial inducements on offer, the availability of quality raw materials and a skilled labour market, and cost effective and dependable distribution services to the UK and beyond, Ireland was an obvious choice for Virgin Cola to establish its new concentrate plant. Indeed, chief rivals Coca-Cola and PepsiCo have been operating concentrate plants in Ireland for many years, and Coca-Cola is in the process of constructing a second plant in the country.
The decision to start producing its own cola concentrate marks a quantum leap forward by Virgin in its objective of building an international soft drinks business, spearheaded by the Virgin Cola brand. While Virgin Cola is the flagship brand and accounts for the vast majority of sales, other flavours and variants are being produced as the company diversifies into other sectors of the soft drinks market.
Virgin Cola will continue to develop growth potential in existing markets through adding new products and extending distribution, while seeking opportunities to expand further overseas. In the UK, France and South Africa, Virgin uses co-packers but carries out all other aspects of the business - distribution, logistics, sales and marketing. However, while not ruling out the possibility of joint venture, its preferred option for developing new markets is long-term franchise agreements, which it already operates in places such as Japan, Belgium, Italy and Switzerland. This combination of franchise agreements and bottling/canning under contract allows the company to remain nimble and quick on its toes.
"If you are up against the big machines of our American competitors, guerrilla tactics, guerrilla warfare and flexibility are the tools you need in order to make a dent in the market-place," reasons Paul Steele. "At the moment, we have the utmost in flexibility. The fact that we can turn new product introductions round very quickly is because we are not overburdened with infrastructure that takes time to change over. We have access to an enormous amount of different types of production capacity which enables us to implement these guerrilla tactics."
Future Concentrate Expansion
The new concentrate plant is currently only operating at about 20% capacity. The continuing growth of Virgin Cola in its existing markets coupled with expansion into new territories will continue to increase the demands for concentrate. "It is feasible to produce one billion ready to drink litres from concentrate at the plant," points out Steve Brookfield. The plant at Lough Egish can also be easily modified to manufacture flavour concentrates, which are becoming an increasingly important aspect of Virgin's soft drinks business, and this issue is currently under consideration and may well be implemented next year.
Another area of future expansion is the production of syrups at the Lough Egish site. This would be an obvious move to support development of the Virgin brand in the Irish market - product is currently imported from the UK. The Virgin Cola Manufacturing Partnership plant can be quickly expanded to 20,000 sq ft, if required. Under the lease agreement with Lough Egish Food Park, if this option is exercised within three years, the extension will be constructed at the same cost per square foot as the original factory.
Virgin is a long-term player in the international soft drinks market, stresses Paul Steele. "Richard Branson is totally committed to make this business work and that is the reason we made the investment in Ireland, and have taken control of our own destiny in terms of converting our company to a 100% Virgin owned entity, and why we are concluding franchise agreements on a long-term basis." Indeed, the cost incurred in terminating the exclusive production agreement with Cott was largely responsible for Virgin Cola having a loss of £7.4 million in the year ending January 1999. "We are here for the long-term, we are here to compete, but most importantly we are here to provide choice to consumers throughout the soft drinks spectrum with high quality Virgin products," concludes the Virgin Cola chief.
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