Hot climes help put fizz in soft drinks firm’s finances

Mar 26 2008 by Alistair Houghton, Liverpool Daily Post

Alistair Houghton meets BRENDAN HYNES, chief executive of Nichols – the maker of Vimto

IT MAY be one of the North West’s most iconic brands, but it’s Vimto’s success in warmer climes that’s really putting the fizz into its finances.

The brand is 100 years old this year, and last week Brendan Hynes, chief executive of parent company Nichols, gave share-holders even more cause for cel- ebration by reporting that the company had seen a strong 2007 with pre-tax profits up 13.3% to £9m.

Even the disastrously wet summer that hit sales at all soft drink companies couldn’t dent Nichols’s progress in the UK as Vimto out-performed the rest of the market.

But Nichols’s performance abroad was still more impressive, with overseas sales up 30%.

Hynes became chief executive in November as John Nichols, grandson of the company’s founder John Noel Nichols, moved to a new role as non-executive chairman. He says Nichols’s success in weathering tough conditions in 2007 gives him a great platform to build on.

“2007 was a very difficult year for the soft drinks industry because we had the worst summer in 250 years,” he said.

He added: “The market was tough but we out-performed it. Nevertheless, as an SME in this sector, we are unique in that we have a substantial overseas business. Our overseas sales rose by 30%, because of our growing and substantial business in the Middle East.

“We sell more Vimto product overseas than in the UK. We sell to over 65 countries. We have a unique hedge in the business because it’s always 40 degrees in Dubai.”

John Noel Nichols created his first “Vim Tonic” in Manchester in 1908. Nichols is marking the centenary with a series of events, including a 100-year party at the Imperial War Museum North in Salford that will see the building lit up in purple.

Nichols has unveiled a limited edition Cluedo game and centenary bottle. The company is also entering a team in the Great Manchester Run, with Hynes himself taking part.

Hynes puts Vimto’s UK success last year down to the strength of its brand. Nichols, he says, invests heavily in the Vimto name, continuing to modernise its identity with new products such as ready-to-drink ranges.

He said: “We will invest up to 15% of our revenue back into marketing. We invest very heavily in the brand, ahead of the average in the industry.”

Vimto’s continuing success overseas is driven by its continuing popularity in the Middle East and Africa.

Nichols keeps extending its reach in those territories, last year expanding to Senegal, and Hynes says there is great “untapped potential” in other markets. Nichols is in advanced negotiations over launching a joint venture in China and is also planning expansion into the Turkish market.

Vimto is produced, bottled and distributed by local partners around the world who have the “magic formula” for Vimto concentrate.

At times when anti-Western feeling in the Middle East runs high, Vimto’s long heritage in the Middle East means it avoids being painted as an imported British brand.

Hynes said: “Vimto has been in the Middle East for about 90 years and it works so well because it’s perceived as a local product. It has the Vimto name and logo on the bottle but everything else is in Arabic. It’s produced in the Middle East and distributed in the Middle East.”

In that region, Vimto cordial is predominantly sold during Ramadan, the month when Muslims fast during daylight hours.

Hynes said: “It’s especially strong Vimto and not the same drink you get in the UK. It is sometimes combined with dates to give you a quick energy boost.

“Ramadan drives the market. It’s a bit like Christmas puddings in the UK. You can buy them all year round, but 80% of the volume is consumed in a certain part of the year.”

Hynes joined Nichols as finance director in October, 2002, from clothing firm William Baird. Before Baird, Hynes worked at Pricewater-houseCoopers and at Merseyside glass firm Pilkington’s North Wales business.

He says he relished the challenge of joining Nichols at a time when it was reviewing all aspects of its business.

Perhaps the most significant change the company made was its decision to outsource manufacturing and warehousing.

Hynes said: “We didn’t believe, frankly, the customer really cared whether their Vimto was manufactured in Golborne or mainland Europe.

“What they cared about was the brand. The customer is prepared to walk that extra ten yards down a supermarket aisle for that brand rather than buying an own-brand product.”

Vimto is Nichols’s flagship brand, but the company also distributes Sunkist carbonated orange drinks in the UK, and has a range of Cabana own-brand draught soft drinks sold through its dispensing arm.

In 2005, Nichols bought Panda, then best-known for its Panda Pops fizzy drinks bottles.

Hynes says Nichols has looked to move Panda away from that “cheap sticky pop” image and has introduced new products, including still spring water with fruit juice flavourings.

The food and drink industry is having to adapt to increasing consumer demand for healthier products, as driven by campaigns such as Jamie Oliver’s drive for healthier school dinners.

The trend has forced soft drinks companies to look again at their product ranges, emphasising high juice content and low-sugar drinks.

Nichols, both at its core Vimto brand and at Panda, has embraced that change – but Hynes says he wants to see more clarity in Government guidelines about drinks for children so companies can adapt accordingly.

He said: “There’s no consistency so it’s difficult for the industry.” Vimto’s carbonated drink sales again out-performed the market in 2007, rising 13% on the previous year.

The market for carbonated drinks is, however, under pressure as consumers look for healthier beverages.

Hynes said: “Sales throughout the industry are not in freefall but they’re probably flat or down about 1%. It’s not Armageddon but the market is evolving to meet the needs of the consumer.”

The ongoing economic downturn has left Nichols nervously monitoring consumer confidence, but Hynes says he does not expect Vimto sales to be hard hit.

He said: “A soft drink is part of the weekly shop. It’s not an indulgence. It’s not one of the first things people cut back on when times get harder.”

Last year, Nichols was the focus of takeover speculation and in March entered an “offer period” after confirming it was in “early stage talks” about a possible deal.

But in September it confirmed talks had been terminated thanks to the impact of the poor summer and the credit crunch.

Hynes says the company was not and is not hunting a deal. Nichols is now committed to an independent future, and Hynes says the company and its flagship brand will keep going strong.

He said: “Vimto has been around for 100 years, and there aren’t many brands that have achieved that. We’ve modernised the brand and out-performed the market.

“We’re optimistic about the next 100 years for this brand.”

alistairhoughton