King Cobra: The Grocer meets Lord Karan Bilimoria

The symbolism couldn’t be more blatant on its label: a cobra hanging lifeless from a mongoose’s jaws.

In case anyone’s in doubt, sources at the makers of Mongoose Beer, named after the cobra’s only predator in the wild, claim their ‘extra smooth Indian lager’ is truer to the original recipe of Cobra Beer than Cobra is itself today. Now Mongoose is on the shelves at more than 400 Tesco stores and is busy nibbling away at Cobra’s dominance of the Indian restaurant market.

Many will be rooting for the cuddly little carnivore. Ever since Cobra Beer went belly up in 2009 and left its unsecured creditors £75m out of pocket, only to be resurrected months later as a joint venture with Molson Coors, the brand’s charismatic founder Lord Karan Bilimoria has been deeply unpopular in some circles. At the time Bilimoria pledged to repay all he owed, but despite the Cobra Beer Partnership racking up profits of £4.9m in its first full year, none of his previous unsecured creditors have seen a penny. “We’ve had no correspondence. As far as I’m concerned his promises are absolute baloney,” says one.

Bilimoria is determined to prove them wrong. “I won’t rest until I have settled everybody,” he says, clearly riled by the comment. “This person may not believe me, but the reason for that is it’s never been done before. What people don’t seem to understand is that I am under no obligation to do this. Nevertheless, I, as a shareholder, am not going to get a penny from this partnership until the secured and unsecured creditors are settled. None of my shareholders will get a single dividend until this has been settled. How long it takes will depend on how well the joint venture does.”

Until Molson Coors stepped in paying just £14m for a 50.1% stake in the partnership while Bilimoria stayed on as chairman with 49.9% the outlook for Cobra was bleak indeed. How things had changed. After its launch in 1989, Cobra’s enjoyed meteoric growth, being stocked in 95% of Britain’s 6,000 Indian restaurants. But such meteoric growth didn’t come cheap.

“The basic principle was that we would sacrifice the bottom line for growth,” says Bilimoria. However he rejects the widely held misconception that Cobra brewed in India and imported to Britain until 1997, when what is now Wells & Young’s began brewing the beer under licence in the UK was never profitable. “Growth was crucial but I always knew at any stage I could stop the growth and recoup the profits. It’s absolutely not true that Cobra never made a profit. We were always very profitable.”

That is until 2006, when Bilimoria stepped down as chairman after US hedge fund Och-Ziff invested in Cobra and appointed its own management. The following years saw huge investment, he says, resulting in “massive losses”. Then came the 2008 crash.

“Suddenly growth had no value - cash became not just king but emperor,” says Bilimoria. “With hindsight I should never have taken the hedge fund’s money. But when you’ve just raised money on an £80m equity value, a hedge fund is giving you tens of millions, your brand is growing and the economy is growing, who can predict what’s going to happen?”

Later, efforts to draw up a Company Voluntary Agreement that would’ve seen Cobra’s creditors paid at least some of what they were owed fell through, after Wells & Young’s, acting on the advice of its insurers, withdrew its backing. This resulted in Cobra collapsing into a pre-pack administration the much-maligned process that effectively allows businesses to fold, dump their debts, and then set up later with a clean slate. Except in this case, creditors have been told they will be paid.

Quite when remains a mystery, although Bilimoria suggests it will be sooner rather than later. His strategy for delivering the necessary growth to achieve this has three distinct phases focus, drive and broaden and is borrowed directly from the one used by Booker CEO Charles Wilson to transform the fortunes of the wholesale giant (of which Bilimoria is a non-executive director) from a company saddled with £300m debt and battling declining sales and profits to one that’s seen its share price triple and its market capitalisation grow to more than a £1bn in five short years.

The first stage the consolidation of Cobra and the shedding of brand extensions such as Cobra Bite and Cobra Light (the latter was in direct competition with Coors Light) has now ended. “Now you’ll start to see serious support behind the brand to drive growth again. I’m not saying we’ll go back to 40% year-on-year. Now we have established and proven the profitability of the brand, we don’t want to jeopardise that. To stay profitable we do not grow by more than 20%.”

The growth will be mirrored in India, the world’s fastest-growing beer market, where Bilimoria signed a new joint venture with Molson Coors in June. To date Cobra has never made a profit in India but, with the backing of the multinational, Bilimoria says he’s on course to break even next year. Cobra India owns the only brewery in the state of Bihar, with a population of 100 million, and the brand is brewed in Hyderabad through a deal with AB InBev and elsewhere in Andhra Pradesh by a local brewer. This, says Bilimoria, puts him in a prime position to cash in on the sub-continent’s future growth.

Once the drive phase is completed in the UK, he adds, the broadening of the business the development of new sales channels and reintroducing brand extensions such as Bite and super-premium King Cobra can begin. And then he can begin to pay back that £75m. He points out that he ensured all those who lost their jobs in the 2009 administration were given full notice periods and all pre-agreed arrangements were honoured. He took his shareholders in the previous business with him into the partnership, he adds, and has almost completed paying back his secured creditors. “Everyone will be paid,” he reiterates.

That’s so long as a certain little carnivore doesn’t cause any problems for Cobra along the way. And there are signs Mongoose is starting to gain ground. “We are very pleased with the sales in Tesco,” says Nigel McNally, MD of brewer Wells & Young’s, which developed the brand. “It is nowhere near the distribution of Cobra but what is encouraging is that despite the efforts of Cobra to displace Mongoose, it’s starting to do well in a number of distribution points.”

Bilimoria is not fazed. “I’m not threatened at all,” he says. “We will have to keep a close eye on it but the proof of the pudding is in the performance. We are now one of the main world beers in this country. Our benchmarking is against brands like Peroni and Corona. The Mongooses of this world are far away from that. For people to make statements that Mongoose is closer to Cobra than Cobra is nonsense.”

He’d do well not to completely count out Mongoose, however. Mongooses might look cuddly, but they’ve a hell of a bite.