When the Irish drinks group C&C decided to look at exporting Magners cider to Britain in the late 1990s, the market research could hardly have been more negative. Glasgow drinkers could not envisage a bottled cider commanding a premium price and image alongside trendy bottled beers. In a market where cider meant scrumpy and cheap draught, it just wouldn’t work.
Eventually the market research was abandoned and Magners was launched in Scotland in 2003. It is now the bestselling “long alcoholic drink” (Lad) in the market, seeing off bottled lager and capturing 3% of the market. It also accounts for 43% of cider sales in pubs.
“This has been about the courage of our convictions,” said Brendan McGuinness, managing director of C&C’s alcohol division.
The 24-year veteran of the company in Clonmel, Co Tipperary, was certain the group’s cider offering could be exported. He believed the success of its cider brand here, where it overcame similar reservations to capture 10% of the Lad market, could be replicated in the British arena.
After Scotland, Magners was launched in London, where last November it became the fastest-growing brand in the Lad category.
Over the summer months, Magners will be rolled out in pubs across the rest of Britain. C&C likes to account for 8%-10% of the total advertising spend in any of its markets, “spending ahead of its share”.
In the Lad market, that will represent a big bet on ruling Britannia.
C&C is in the vanguard of an army of Irish companies making bold statements in the UK market.
After a pint of Magners, an British consumer could go to the West End in London to catch a film at the Empire Leicester Square, which is owned by the Ward Anderson Group. The Dublin-based company paid €120m to buy 17 cinemas in Britain last year.
Our notional consumer could then stop off to place a bet at the local Paddy Power bookmaker. The chain will open 15 shops in Greater London this year, bringing its estate to 60.
On the way home he might pop into a Londis corner shop (Musgrave owns 2,200 of them in Britain) to buy cigarettes. At home he may open his freezer and choose either a Kerry Group vindaloo or a Greencore-manufactured pasta carbonara for his TV dinner.
Later he can book a flight online with Ryanair, choosing from 88 destinations out of Stansted. Then he could throw on a Primark T-shirt before heading for bed where he could spend 15 minutes listening to one of UTV Wireless Group’s radio stations.
The “greening of Britain” has not been limited to trophy property purchases such as the Savoy hotel. Irish companies spent at least €1 billion on acquisitions in Britain last year.
The Quinn Group, Ireland’s largest private company, will invest €700m on its operations in Britain over the coming three years. The market is expected to be the key driver of profits for the Fermanagh group, with sales targeted to grow at an annual clip of 50%.
The attraction is the size of the market. If Magners managed to corner 0.5% of the London Lads market, the sales would add 3% to C&C’s earnings per share. That is just a tiny slice of one market.
“About 25% of the Iseq’s earnings are derived from the UK,” said Philip Kearney, a senior fund manager with Hibernian Investment Managers. “A lot of companies have become leaders in the sector — Kingspan is one of the best examples. It was big in Ireland before it made the move and it can spot unmet needs and exploit that.”
Success at home is no guarantee, however. Some of Ireland’s largest companies, from the Bank of Ireland and CRH, Independent News & Media to Glanbia, have failed to crack the British market.
“Once you’re expanding beyond your boundaries, you’ve got to have a clear strategic view, capital control and financial control,” said Joe O’Dwyer, the chief investment officer at Oppenheim. “Historically, cross-border acquisitions have proved value-destroying.”
There are no golden rules for success in Britain, but there are clear trends. Niche players, such as the building products firm Kingspan, prosper and, in general, it has been better to build businesses than buy them.
Grafton Group undertook a successful acquisition programme in Britain, buying small builders merchants and integrating them seamlessly. But the expansion process took more than 10 years, a testimony to chairman Michael Chadwick’s patience and knowledge of the trade.
Financial services company IFG went on a similar “land grab” in the independent financial advisers (IFA) market, but not with the same success. “They mounted an expansion in the UK by buying a load of financial services businesses in the late 1990s that ended up costing them money,” noted a senior market analyst.
Banking has provided a good comparison of varying approaches and fortunes. While Bank of Ireland was slugging it out in the cut-throat mortgage market in Britain through its aquisition Bristol & West. which it later sold to Britannia Building Society, AIB and Anglo Irish Bank prospered by lending to small businesses and professionals. Britain now accounts for 48% of Anglo’s loan book.
Having launched its Inn brand in Ireland in 1993, hotelier Jurys Doyle quickly began formulating plans to export the model to the British market. Jurys decided to build, not buy.
“It made sense as the UK is our nearest neighbour, speaks the same language and has a population of about 60m,” recalls Pat McCann, Jurys Doyle’s chief executive.
Jurys now has 19 Inns in the UK and all except the properties in Birmingham and Edinburgh are new-builds. Four more are in various stages of construction and a handful are under negotiation. McCann believes Jurys could build a chain of 40 Inns in Britain.
He decided to build from scratch rather than acquiring an existing chain. “There was a lack of availability of product and problems with location. That convinced us we were better off to start from scratch.”
Britain is now proving more profitable than home turf due to lower costs and higher room rates. “We’ve been lucky. There’s been a lot of city regeneration and we’ve been involved in it,” he said. “There’s still a lot of opportunity for us.”
After a few false starts in the UK, McCann believes Irish businesses are now more savvy when expanding into Britain.
“The way Irish managements look at these things has changed radically over the past decade,” he said. “We’re better at recognising the opportunities and seeing the pitfalls.”
There are still those happy to pass on Britain. Irish Life & Permanent has made a virtue of not expanding abroad. It has only one overseas business, Capital Home Loans, a British buy-to-let mortgage broker it acquired in 1994.
“It’s a good business that makes good returns,” David Went, its chief executive, said. Though a small part of overall group profitability, Went says CHL achieves a return on capital of more than 25%.
“We bought the business for peanuts, so it has worked out well for us. I’ve always felt it’s more difficult to play away from home,” he added.
“In the case of IL&P we had neglected our home market, particularly on the life (insurance) side, and invested overseas, but not in a focused way.
“We owned part of a business in Hungary, part of one in France and had half a billion dollars in US life assurance. But none of them were making any money, and from our perspective they were a distraction. We live or die now by Ireland.”
Went sees no reason for IL&P to look to Britain or any other overseas market. “The real problem is that even when you buy in a big market you only end up with a very small share and that’s one of the fundamental reasons why I don’t like buying overseas,” he said. “You just don’t have the capital to be able to make an impact.”
IMPACT is precisely what McGuinness and C&C plan to make. A national television advertising campaign and high-profile sports sponsorships will make Magners the most heavily promoted Irish brand in Britain since Guinness.
Even a slight slowdown in sales growth in Scotland has not dented market confidence. The buzz surrounding the British launch has helped double the C&C share price in the past year, adding almost €1 billion to the company’s valuation.
Sometimes, it pays to have the courage of your convictions.
IRISH STARS WHO FAILED TO DAZZLE IN THE UK
THE road to the British market is littered with some of the biggest names in Irish business. And often it has been a case of the bigger the name, the harder the fall.
Waterford Crystal’s purchase of Wedgwood continues to be a prime destroyer of shareholder value.
IWP’s overstretched acquisition of disinfectant-maker Jeyes was the main catalyst in the decline and recent delisting of Joe Moran’s industrial holdings group.
The Qualceram boss John O’Loughlin’s audacious reverse takeover of bathroom-maker Shires has been a constant drag on the company share price.
All three British companies were household names and heralded acquisitions as “transformational” for their Irish buyers. They all failed to deliver.
Sir Anthony O’Reilly said he will continue to fund Wedgwood. It is not his only British disappointment. The media magnate bought into The Independent newspaper in 1994 and paid almost €80m to gain control. It has never made money for him.
Glanbia lost a fortune in the British milk market in the 1990s and it took years for the group’s balance sheet to recover from the write-offs.
Bank of Ireland did not lose money at Bristol & West, but its retreat from the mortgage market was humbling. Its British retail operations are now centred on a joint venture with the loss-making Post Office.
Not to be outdone, AIB wrote off €139m when Michael Buckley, its former chief executive, sold the investment company Govett Asset Management in 2003.
Having risen to millionaire status in the 1980s through his asset finance company, Yeoman, the financier Paul Coulson was ready to take the plunge and cross the Irish Sea. In 1988 he stumped up €111m for British leasing group CPL Holdings. Within months of a stock market flotation to ease the financial burden of the investment, shares in Yeoman CLF had tanked in Dublin and London.
Coulson took out a £115m (€166m) negligence case against his advisers, S G Warburg and Linklater, recovering £34m in an out-of-court settlement.
