On the Street -- Molson Coors is New Cobra Commander
June 3/Business Monitor International Ltd. -- Having fallen into administration after failing to find a buyer or strategic partner, the U.K.'s Cobra Beer has been snapped up by Molson Coors. An iconic brand in the U.K.'s Indian restaurant sector, Cobra ploughed funds into attempts to widen its appeal, both in the U.K. pub channel and in the fiercely competitive Indian beer market. These largely unsuccessful efforts hurt the company's bottom line and contributed to its demise as recession clouds gathered.
Cobra is thought to have spent some 40 million pounds ($65.6 million) on marketing and brand-building in its efforts to crack the U.K. pub sector, an industry awash with premium international brands, as well as affordable mass-market lagers. A hugely competitive industry, Cobra will also have been a victim of timing, its spending coinciding with a slowdown in both pub and restaurant sales.
Cobra claims to have far out-performed the market in this period, volumes rising 20% in the nine months to the end of April, as the wider market stagnated. However, while a strong economy and positive consumer sentiment could support the company's sales-growth-led business model, a sharp deterioration in economic conditions firmly turned the spotlight on the company's failure to turn a profit, and in late 2008, it appointed investment bank Rothschild to search for a buyer or partner.
The brewer's failure in this mission can be attributed to the earlier failure of one of its other objectives. Created to accompany Indian cuisine, Cobra had planned to make significant strides into the Indian beer market. However, a market share target of 10% within six years in an industry dominated by giants United Breweries and SABMiller meant Cobra fell short. Had it even come close to its ambition, a significant footprint in the high-potential Indian beer market might have proved sufficiently tempting for a buyer.
As it was, the deal ended up being for a U.K.-centric, restaurant-focused brewer, attempting to find a buyer during a period of acute economic uncertainty and on the back of a recent round of major industry consolidation, which left most would-be bidders looking to bed down existing recent acquisitions. With industry buyers absent, Cobra had no more joy with institutional investors, most of which were crunched by weak credit availability.
Offering just 14 million pounds ($23 million) to pay off Cobra's secured creditors and gain 50.1% of a now debt-free business (Cobra founder Lord Bilimoria will hold 49.9% in a joint venture with Molson), the economic landscape is unlikely to have worried Molson Coors. The North American major is expected to continue to focus on the Indian restaurant sector for the time-being, perhaps seeking wider opportunities for the brand as and when consumer demand improves. Joining a portfolio that includes Carling, Coors and Grolsch, Molson should be able to better balance the conflicting priorities of brand-building and profitability.
From the June 8, 2009, Prepared Foods E-dition