A new blood line

A big acquisition usually signals big changes for the business that’s been acquired. With Heineken and Carlsberg’s £7.8bn joint takeover of Scottish & Newcastle, however, the anticipated shakeup has been conspicuous by its absence.

Six months after the deal went through, there hasn’t been a change of name, nor is one planned. S&N corporate logos have stayed the same, and so far the drinks portfolio remains untouched.

The outward semblance of calm belies some seismic shifts internally as the two cultures have been integrated, admits Jeremy Blood, the S&N old hand charged with running the newly merged business. And there have been creative differences over how to take the business forward. But he insists, a more focused business is emerging as a result - one that very much embodies the best of both cultures.

Blood confesses to mixed feelings initially about the unsolicited takeover in April, which gave Carlsberg full ownership of Baltic Beverages Holding -its Russian-based joint venture with S&N, and handed Heineken S&N’s UK business, which includes Foster’s, Kronenbourg, Strongbow, John Smith’s and an estate of more than 2,500 pubs.

“It was sad,” recalls Blood. “You can look back on S&N with pride and sadness that it is gone, but you must be careful not to look at Heineken with anger or enmity. The world changes and in the 20 years I was with S&N we took over dozens of companies and we were taken over once. That is what happens.”

Appropriately, given his name, Blood is sanguine about the situation, as you might expect of someone who graduated with a philosophy degree. His response to every question thrown at him is reasoned and pragmatic. Take this answer concerning the compatibility of S&N and Heineken, for example - the first a listed, UK-focused, nimble business and the second a family-owned, global company with an old-school European feel.

“Actually what has really helped us is that the values of the Heineken business really aren’t a million miles away from what we have here,” he says. “What we both have in common is a long history in the brewing industry, so beer is deep in the DNA of both businesses.

“This means, for example, that we both know beer, for good or for ill, is based on long-term relationships. You don’t make money in this business by selling to a customer once, you make money by selling to a customer for 10 or 20 years, so relationships become very, very important. Heineken understands that. In those sorts of ways I think the value mix is surprisingly close and that has made integration easier. I believe there are other international brewers out there with whom it would have been harder.”

That’s not to say that he has allowed Heineken to ride roughshod over a company he was “very fond and proud to be part of”. He hints at strong disagreements on board appointments at the start and suggests there will be more tussles to come. “I’m not afraid to argue with them,” he says defiantly. “I’ll disagree with Didier Debrosse (Heineken’s regional president for western Europe) and the Heineken view of things because I tend to want to do things the way I am used to. That’s good, arguing is what you should do, and I don’t have a problem with that. This isn’t going to be about us ‘Heinekenising’ ourselves.”

What it is about is integrating the best practices of both companies, he says. “That is what we are working towards. It means taking on board the fact that S&N is more open, more communicative and less hierarchical than Heineken,” he says.

“Maintaining real enthusiasm for beer is what we can learn from them. I think in parts of our business we have really lost that. In production and manufacture, for instance, there were times when we’d talk about liquid when - as the Heineken team quite rightly pointed out - it’s beer. I think that influence will invigorate our pride in being brewers and that will be very good for the future of the business and the beer industry as a whole.”

It’s a controversial standpoint. For many the loss of the last of Britain’s big brewers was the nail in the coffin for the once-great brewing tradition of the UK - not its saving grace. Consolidation, say the critics, has killed the variety and craft that once characterised British brewing, changing it into a homogenised and commoditised business. Blood is quick to dispute their line.

“The analogy I always use is the rainforest. Look at British brewing 30 years ago and there were a lot of medium-sized breweries, medium-sized trees. When you have a lot of medium-sized trees there isn’t much room in the undergrowth for the little guys to pop up. What we have now is four international brewers in the market that are like big, big trees and that leaves a lot of space in the undergrowth for small craft brewers to flourish.”

Blood cites the company-owned Caledonian Brewery, famous for Deuchars IPA, as an example of this. “That is a part of the business we run very much at arms length,” he says. “I say to the guys that run it, yes, let’s try and find efficiencies but if the jackbooted guys from manufacturing come in and start meddling, just pick up the phone and tell me and we will stop it. We need to keep that as a craft brewery because people will pay for a craft beer. Is that viable? Of course it is, look at something like Cadbury with Green & Black’s. But it does need to be done with authenticity because I think if you do it in a fake way consumers will find out.”

One of the other big industry concerns following the takeover had been the future of S&N’s cider portfolio. S&N’s heavyweight investment in the category - to the tune of £45m in marketing alone last year - has helped its Bulmers brand become a serious contender to the Magners ‘over-ice’ crown. Some experts do not believe the Dutch family brewer will be as committed to the cause.

Blood takes umbrage at the suggestion. “One of the misconceptions of the Heineken business, particularly in the UK, is that it is just about Heineken lager. In truth, the business has far more depth and scope than that. It is a very big soft drink manufacturer in many markets, for example. It is also the Pepsi bottler in the Netherlands and the biggest wholesaler of wines and beers in the whole of Europe. Looking at the business globally, only 20% of the beer it sells is the Heineken brand.”

The Dutch team has already grasped cider’s potential, insists Blood. There are plans to launch Strongbow Gold into the Dutch business and develop the brand in other markets around the world, too. There is also scope for the global development of other UK favourites such as Newcastle Brown Ale, he says. On the flipside, Heineken’s global portfolio means a raft of beers, including Asian, Polish, Spanish, Italian and even Irish brands, are all tipped for entry to the UK market.

“We are still in negotiations but things I am already excited about include the Tiger brand from Asia Pacific Breweries, which Heineken owns a 40% share in,” says Blood. “It’s run by Tiger UK here but we’ll be looking to have a much more active part in that. We’ve also got Polish brands that are very interesting, Cruzcampo from Spain, which we are just evaluating now, Birra Moretti from Italy and Irish stout Murphy’s, too. I think we are going to be able to give Guinness more of a run for its money.”

There are also, of course, plans for a big Heineken push in the UK. The S&N UK infrastructure and reach will put the brand in a stronger position than ever before against brands such as Carlsberg and Stella. Blood says he has been surprised by the company’s heedful approach to pushing the brand in the UK, however.

“Naively I thought it was going to be Heineken pushing us to grow and develop the brand, but it’s been the other way around,” he claims. “They’ve been saying ‘slow down, get it right. We will judge you on having a secure, stable and healthy premium brand in five years’ time. We won’t be judging you in two years’ time.’ They are looking at brands like Stella Artois, which had a huge boom and now is going through a relative bust. And that boom-and-bust cycle is absolutely not what Heineken is about.”

Despite the torrid economic climate and the impact on the business of the government’s clampdown on binge drinking, Blood is positive about the future and his role in the business as it mutates into something new. “I want to make the UK arm a business that Heineken is proud of. Yes, it’s tough in mature markets, it’s bloody hard work right now for drinks companies all over Europe, there’s no doubt about it.

“However, you can also make a lot of money in mature markets - you may be able to brew 10 times more beer in China for the same price as here but you have sell it for a lot less as well.”

With Heineken behind it, Blood believes S&N is well placed to take advantage of the growth opportunities that still exist in the more mature markets. He accepts there will inevitably be cultural challenges as the two businesses merge, but is adamant that the sum will eventually be greater than the parts. He may be right. After all, beer is in their blood in more ways than one.