Nov 27, 2008

Business - Why Cobra beer is up for sale

Will Smale
Business reporter, BBC News


Cobra Beer sells itself as being "less gassy" than its rivals, and now some of the fizz appears to have gone out of its fortunes.

The UK-based company that also likes to shout about its Indian heritage announced this week that it had been put up for sale by its founder, Lord Bilimoria.

The Indian-born British peer has appointed investment bank Rothschild to assist with either a sale or a "strategic partnership".

The move comes after talks to sell the business to global drinks giant Diageo collapsed in the summer after the two sides could not agree a price.

Yet with Cobra estimating that its global sales will hit £177.6m this year, why does it appear so keen to give up its independence?


Most pressingly - it isn't making a profit.

The most recent available figures show that in the year to 31 July 2007 Cobra made a pre-tax loss of £13.1m, despite a 42% rise in sales.

A spokesman for Cobra told the BBC that while current losses remained broadly similar, this was a deliberate business decision.

"We have sacrificed short-term profitability to invest in the brand," he says.

"Profits have been reinvested back into the business."

Rapid growth

But with sales seemingly still so strong - helped by its presence at what appears to be every Indian restaurant in the UK - just how can Cobra be making a loss?


Beer industry analysts point to a number of factors, starting with Cobra's rapid growth.

While the company itself proudly says it is one of the UK's fastest growing beer brands, some analysts have questioned whether it has expanded too fast.

They point to the fact that Cobra has spend £40m on marketing since its inception in 1989, a substantial figure for an independent firm.

There has also been some problems with Cobra's ambitious and expensive overseas expansion, most notably its failure to tackle the US market after it failed to gain the right to use the Cobra name in America.

'Just another lager'?

In the UK, some commentators question how Cobra's revenues have held up in recent months against the backdrop of an industry-wide fall in beer sales.

Recent figures from the British Beer and Pub Association showed that beer sales in pubs fell 8.1% between July and September, while those from supermarkets and off-licences declined 6% during the same period.


"I think Cobra has been a victim of falling sales and demand for premium lagers," says Roger Protz, editor of the Good Beer Guide.

"When you taste Cobra, it is just another lager, and not a particularly interesting one."

Mr Protz also thinks that Cobra has been hurt by the fact that despite its Indian image, almost all of its beer on sale in the UK is actually brewed here.

Cobra was initially brewed in India from 1990 to 1997. However, since then it has been made for the company in the rather less exotic environs of Bedfordshire, although it also began brewing in India again three years ago.

Brand expert Jim Boulton, a partner at advertising agency Story Worldwide, said Cobra hadn't fully exploited its early success.


"The lager market is hugely competitive and how Cobra gained a toe-hold via the UK's Indian restaurants was inspired," he says. "However, this early success has not been exploited."

"Cobra forgot its maverick roots and tried to take on the big boys by replicating their approach, and in the process became just another 'me too' brand.

"Without a point of difference, any brand in an overcrowded market is going to go flat."

Indian revival

However, in Cobra's defence, its plans to grow in India seem to offer a real opportunity for vast expansion.

With the Indian beer market now growing at a rate of 27% a year, Cobra announced at the start of this year that it had bought a controlling stake in a brewery in the state of Bihar in north-east India.

Prior to that, its beers were brewed under licence at five other locations across the country.

Cobra is aiming to gain a 10% share of India's beer sales by 2012.

Yet with Cobra itself now up for sale, it seems as if it will be other owners that aim to toast that reward.

130 comments:

Rebeca said...

Cobra Beer is getting 'premium' positioning since its acquisition by Molson Coors Brewing Company earlier this May. Now Cobra is owned by Molson Coors and the brand's founder Lord Karan Bilimora.
Ahead of the sale it had been on an aggressive push to broaden the beer's appeal beyond its heartland of Indian restaurants and into mainstream pubs and bars. The ultimate aim was to make the brand an attractive target for acquisition.

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