From bust to boom - doing business the Merrydown way
verge of going bust, bogged down by spiralling costs, a lack of
focus and dependency on a product - cider - in dire financial
straits.
But last week, Merrydown announced a 17 per cent increase in first half sales to £9.68 million - so how has the company turned itself around in such a spectacular fashion?
According to Nigel Freer, chief executive, it was more by luck than by design. "We were a company in all sorts of trouble," he told FoodandDrinkEurope.com. "So after we were given a lifeline with the refinancing of 1998 we decided to focus on a much simpler approach to the market - to 'go virtual' by reducing our fixed costs and reacting more swiftly to the needs of the market."
But the problem was that the company only had two brands - Merrydown cider and Shloer, a grape-based adult soft drink - and one of them (Merrydown) was trying to compete in a cutthroat market where margins were reduced to almost nothing.
"So almost by default we were forced to look closely at the Shloer business for the first time. There was no great thought put into the matter, it was simply a case of looking at the brands we had and what we could do with them," said Freer.
Here, too, there were problems. The company was - and had always been - run by cider men (Freer, for example, has the honour of having created the Scrumpy Jack brand when he was a Bulmer's man) and was geared up to doing business in that market. "We were 70 per cent cider, 30 per cent soft drinks in 1998, and the likelihood is that we would have stayed that way, if the cider market had remained buoyant."
But the cider market had been far from that for some years, with a 'stack it high, sell it cheap' strategy adopted by "competitors with deeper pockets" essentially making it impossible for Merrydown to make any money in the cider market without a radical change of strategy.
"Having decided, almost by default, that the way forward lay in developing the Shloer brand, we were faced with the problem that none of us knew anything about the brand, which we'd acquired from the then GlaxoSmithKline in 1993," Freer said. "So again the strategy was more or less decided for us. We went to the people who did know the brand - the consumers and the trade - and what we discovered was that, despite a lack of investment for many years, the product still had a premium image."
The next step was to give it a premium look which fitted that image, and to invest for pretty much the first time in promoting the brand. Yet again, Merrydown's timing was impeccable - the late 1990s were the start of the boom period for so-called adult soft drinks (less sugary and more sophisticated alternatives to carbonates such as Coke and Pepsi), a market driven by brands such as Fruitopia and Oasis into which Shloer - a name already known to many - fitted with ease.
In just five years since the company's refinancing, Shloer has become a major brand for Merrydown, with sales growth far outstripping that of the cider business. In the first six months of the current year, the drink's sales rose by 29 per cent to £6.15 million, helped by the hot weather, certainly, but also by the continued dynamism in the adult soft drinks market - to which Shloer itself has contributed with a number of line extensions.
And Shloer will continue to be the focus in the future, according to Freer. "This brand is not yet available in the on-trade, the foodservice sector or export markets - and we think we can double our sales to the multiples - so there is little doubt about what we'll focus our energies on in the future."
But he did not rule out possible acquisitions, if the right product came along, nor would he dismiss the possibility of Merrydown itself being snapped up - though he stressed that the company was not on the market and would certainly "not be sold cheaply".
Many companies are successful at hauling themselves back from the brink - and many others are not - but few can have been as fortuitous as Merrydown. The company has certainly worked hard to get where it is today, creating the right strategy for its brands in a fast-changing drinks sector. But it had to go right the wire to get to this point - without the possibility of wiping the slate clean with the refinancing, the company would still be struggling to make money in cider - or more likely, have toppled over the brink completely.
The way in which Freer talks about the business shows that he is clearly aware that luck played a major part in the strategy - what, for example, would the company have done if it had had an apple juice as its second brand rather than Shloer, or if Shloer's image had been a down market one? - but he also shows a clear determination to succeed this time. Luck plays a part in most businesses - especially in the food and drink industry where factors as diverse as the weather, fashion or health concerns can change a company's fortunes almost overnight. The key is to ride the luck, and come out stronger and better on then other side - the Merrydown way.
