Lord Karan Bilimoria: Cobra Beer
As one era ends, another begins. Last summer, Cobra Beer founder Lord Karan Bilimoria relinquished the role of hands-on chief executive. In came Adrian McKeon. Here they tell the transition story and reveal how Cobra will go truly global.
Eight months ago, Cobra Beer founder Lord Karan Bilimoria handed his ‘baby’ to a man he barely knew. Not easy. But it’s clear he’s unequivocally satisfied, nay delighted. New chief executive officer (CEO) Adrian McKeon, the former UK managing director of Beam Global Spirits & Wine, came with an enviable reputation and has been nothing short of “phenomenal”, according to the man himself.
In his first two weeks, McKeon met with all 300 employees in the UK, India, South Africa, America and elsewhere face-to-face. In the first six months, he has delivered far more besides. He has held a top-to-tail review of the business, added senior appointments to the board, made the company’s first acquisition of a brewery, closed operations that were under-performing, focused the UK operation on expanding existing sales channels and creating new ones, planned the launch of a brand new business model of producing beer and has sharpened the existing culture. No wonder he’s popular.
Nevertheless, Bilimoria, who has diluted his stake to just over 50% through issuing share options, admits he did indeed find it tough. “This is something that Arjun Reddy and I created from scratch,” he says. “The beer didn’t exist. The brand didn’t exist. We built up a culture and tried to make sure those principles, values and culture remained. You’ve got to accept change, but for me it has been very difficult to do.”
The right balance
Arguably, the worst thing you can do when you bring in a successor is meddle. So has Bilimoria found the balance? McKeon thinks so. “Karan’s moved back quite significantly from the operational part of the business,” he says. “He’s always there when I want advice, and I meet regularly with him once a week for an hour and a half or so to sort through the business issues and get his opinion. But actually he has been fantastically generous in letting me get on with running the company.”
Externally, too, Bilimoria says, the role distinction is clear. “I will not go over Ade’s head,” he is keen to point out.
It’s not the first time Bilimoria has handed over aspects of the business. After setting up with Reddy in 1989, the former Arthur Young (now Ernst & Young) chartered accountant and Cambridge law graduate did a little of everything. When Bilimoria then hired a financial controller upon Reddy leaving the business, he relinquished the accounts department, although not the fundraising role. It wasn’t until 2001 when former ebookers.com chief financial officer and long-term target Dynshaw Italia joined as finance director that he stepped away from that.
With Bilimoria having already used a number of financial instruments at Cobra to fund growth – including small firms loan guarantee, bills of exchange, factoring and trade finance – it was left to Italia to innovate too. And he did. In 2006, he raised £27.5m, £25m of which came through PIK – payment in kind – notes from hedge fund, Och-Ziff Capital Management.
The hiring process
In an effort to recruit a CEO who could make a similarly impressive impact, Bilimoria started the process early. As he took his seat in the House of Lords in July 2006, it had already begun. This coincided with Cobra having reached a size that would both attract top candidates and enable the company to afford new hires. Over the next year, Cobra worked with two of the leading headhunters in the country, Odgers and Whitehead Mann, with Bilimoria personally interviewing 20 individuals. McKeon ticked the boxes.
In his first 18 months at the helm of Beam Global Spirits & Wine in the UK, profits grew by 26% following acquisitions of Allied Domecq brands. He had previously worked at boardroom level for Constellation Brands and then as managing director of Allied Domecq Wines.
At the interview stage, Bilimoria was struck by McKeon’s presentation, which reassured him that, despite a large company background, he had the right mentality to handle a fast-growing entrepreneurial business.
“Even before he started he had thought about it a huge amount and he presented to us as a company,” recalls Bilimoria. “He said: ‘This is what we’re going to do. We’re going to be pirates; we’re not going to be in the navy,’ and he gave us his pirate strategy.
“He made it very clear. He showed a graph and said: ‘For six months I’m going to cost you, then I’ll start paying back through my strategy and my team. But give me six months to get the team and strategy right.”
Cobra the challenger
When informed of how he’d made an impression, McKeon seems amused that the pirates analogy was so influential. “That’s a concept I read in a book by a guy called Adam Morgan,” he says. “To me it summed up perfectly how to approach life, not just business. It’s much more fun to be a pirate than it is to join the navy.” The book, The Pirate Inside: Building a Challenger Brand Culture Within Yourself and Your Organisations, details a more maverick approach to business.
“One of the things our competitors don’t do is share information on consumer understanding with their customer base, because they treat it as proprietary,” McKeon continues. “Our approach is the opposite. We say: ‘If you’re going to sell them more beer, then why wouldn’t you make it Cobra, because that’s the fastest-growing beer in the UK.’ That’s very different and allows us to act like pirates, which is a cool, cool place to be. As far as I’m concerned it’s much better to fly under a sail that’s got a big skull and crossbones.”
Cobra’s retail turnover amounted to £126m for the year to May 2007, equating to £55m revenues, and the company has every intention of being a billion-dollar brand before long. But in the drinks industry, Cobra is still a relatively small, independent beer company, according to McKeon. “Consumers love the David versus Goliath story,” he says. “For me, a David position is an attitude. It’s in your mind. It’s not a size issue. In that regard, size doesn’t matter. This is about your mental approach. If you’ve got a challenger approach, that’s what keeps companies like ours hungry.”
McKeon’s astute enough to know, however, that hunger can soon be perceived as greed, and that, paradoxically, he could make Cobra a target for criticism, not praise. “In fact,” he says, “we were just talking about this in the office today. If we’re going to go to the next level of growth, there may be some people who feel slightly alienated by what we do.”
To ensure quality of product and service remains high while scaling the operation, McKeon brought in consultants. The three-month top-to-tail review by Cognosis, a well-known firm in the drinks industry and one he had used before, was eye-opening. “We put together a plan for the next few years which went down to granular levels of detail in our two core markets: India and the UK,” says McKeon. This meant making tough calls in non-core markets, such as South Africa and the Americas, where much time and effort had been invested. The American office was closed and distribution in South Africa has now been outsourced to one of the largest importers of beer in the country, with Cobra’s South African director staying on as a brand champion. “We’ve put in place a principle called ‘fast failure’ that says: ‘Allow people to try things and if it doesn’t work shut it down quick,'” says McKeon. “The biggest cost to a business is keeping ideas going when you’re flogging them.”
No blame culture
While South Africa and America were big calls, McKeon’s an advocate of decisions being made “as close to the point of impact as possible”. This means delegating responsibility to the salespeople and brand managers, and living with the consequences. While Bilimoria has always encouraged such an ethos, McKeon has added to it. “In my experience, the ones closest to it usually know the right or best things to do in that situation,” he says. “What that forces the directors to do is direct, not manage. You’re setting up a framework within which you’re allowed to make decisions because you can.
As an example, McKeon cites the decision to pull out of contracting some beer production to a brewery in Germany, which was made relatively low down in terms of the management structure.
So McKeon doesn’t even hear about key decisions until after the event? “People are going to make mistakes, but it’s how you treat those mistakes,” he says. “People make mistakes all the time. People are looking to you very clearly to see what your response is going to be. It’s about giving confidence. Success for me is people coming to me saying: ‘Here was the premise, it failed, and this is what we’ve moved on to.’ That’s when you know the culture is really kicking in, as you don’t even get to know about it. That’s success.”
A board for the future
To achieve this you need a team you trust. In addition to the established members of the board, McKeon has introduced a commercial director, Nick Paget, a former colleague at Beam, and marketing director Will Ghali, hired from PepsiCo. While well-established in more than 6,000 Indian or other Asian restaurants, largely thanks to sales director Samson Sohail and his telesales team, Paget will seek to build Cobra’s presence elsewhere.
“In the UK, it’s about putting together a business plan that allows us to become a top 10 premium lager brand in two years,” says McKeon, “and that is really brought about by continuing to grow the business in other sales channels, such as grocers, supermarkets, convenience stores, off licences, cash & carries and a major drive in the on-premises sector in the UK, including pubs, clubs, and hotels where our beer isn’t currently available.” Achieving the two-year plan equates to Cobra making UK revenues of £100m. And that’s against a backdrop of a beer market that’s in decline with alcohol consumption also dropping. “So they are fairly ambitious plans”, admits McKeon.
The good news for Cobra is that research has shown that half of all UK males have had an Indian meal in the past four weeks, so have therefore had a ‘touch point’ with Cobra. The challenge is taking any warm associations they have with the brand while eating curry to different experiences. “There are 20,000 licensed outlets to reach within the next two to three years, which is a huge target,” says Bilimoria.
Ghali is also involved in achieving Cobra’s UK ambitions with a £14m TV, radio and press advertising campaign starting soon that will give consumers ‘permission’ to drink Cobra in other situations. Within a few weeks of starting on-trade distribution, close to 1,000 new outlets had been added to the roster – and that’s before the campaign starts.
The India equation
India is Cobra’s other core focus, and McKeon has set the goal of selling 20 million cases there in five years’ time. As the fastest growing beer brand in the fastest growing beer market in the world – India’s beer sales grew by 27% last year, with Cobra sales rocketing by over 600% – the target appears achievable, but has gone from a near-standing start. “Some 18 months ago we sold 50,000 cases of beer in a year,” says Ghali. “This year we’re on target to sell two and a half million.”
It’s a major shift and down to a number of economic factors. “The beer market has doubled in the past five years in India,” says Bilimoria. “If you look at the next 20 years, it’s going to go up 20 times because there is that exponential element to it.” The Indian middle class is growing by 15 million a year in a country of 300 million people. Over 50% of the population are under 25. Until now beer has made up less than 10% of alcohol consumption, but that is changing rapidly as liberalisation takes off. The parallels with Russia, Poland and China (now the biggest beer market in the world) are clear. Economic growth and beer sales go hand in hand.
Cobra’s biggest challenge is keeping up with demand. “In India we’ve got seven contract brewing arrangements and have bought our own brewery because the capacity in India’s not going to be there,” confirms Bilimoria. “Hundreds of new breweries will be built over the next 20 years. So there’s no short cut.”
That’s why Cobra acquired Iceberg Industries Ltd, a leading brewer in north east India. But to match Cobra’s five-year plan, more breweries will be needed and £25m has been set aside.
All this talk of beer-drinking makes you wonder about Cobra’s responsibilities as a purveyor of alcohol. Fast forward 50 years and will the correlation between rising disposable incomes, liberalisation and a rising beer market reach a point where binge drinking, alcoholism and rising levels of obesity put a bigger drain on the country’s health service and weaken this emerging economy?
“That’s a good question,” says McKeon. “I don’t know the answer. At the moment it’s all positive. You can’t advertise alcohol on TV in India. And for a society that has not been exposed to alcohol, I think it’s a good thing. We’re very aware of our responsibility and have to think about what’s appropriate as well as growing our business.”
Eyes on the future
Beyond the UK and India, what can we expect from Cobra? There’s the new, under-wraps business model of producing beer across two countries, reveals Bilimoria, but McKeon will not be drawn further on this, aside from saying there are actually three innovations in the pipeline, “a drinking extension, a format extension, and a variant extension, which is a different drinking experience”.
In the past, Bilimoria has said he expects Cobra to float in 2009, so will it still happen? “No,” says McKeon. “We’ve got too much to do. In a couple of years’ time our business will have a revenue line of £180m to £200m. That creates options. Then it might be a float or a management buy-out, who knows. Until then I’m paid to deliver the vision of Cobra. And the vision is to create great beer. Life can be too complicated.”
Timeline for a beer
1989 Karan Bilimoria and Arjun Reddy set up a beer brand, initially called Panther
1990 Name changes to Cobra and the first beer is imported to the UK
1994 Reddy leaves the business
1996 Brewing moves to the UK
1998 Bilimoria’s Tandoori magazine runs an article on ‘poor service’ that prompts a boycott of Cobra by Indian restaurants, pushing the beer to the brink
1999 Boycott officially withdrawn. General Bilimoria Wines launches
2002 Opens offices in India and New York
2003 Launches first TV ad campaign. South Africa office opens. Production moves to Poland
2004 Exports Cobra as Krait to US
2006 King Cobra, the world’s first double-fermented lager, launches, winning 12 Gold Medals at the Monde Selection Awards
Adrian McKeon becomes new CEO. Bilimoria takes role of executive chairman
Back to the floor
In his first two weeks as Cobra chief executive, Adrian McKeon spoke face-to-face with every single one of the company’s 300 employees.
“You’re only the new kid once,” he says. “People will talk to you, especially if you act on what they tell you.”
His meetings yielded key findings. Decisions on the American office and South Africa operation were made as a result of what he was told, along with changes to telesales, restructuring the marketing department and prioritising corporate social responsibility through the existing Cobra Foundation. “There was such a welter of strong feeling towards it,” he says, “but that wasn’t reflected in the way employees were involved in the initiative.”
As Cobra has grown globally, internal communications had suffered,” says McKeon, “so we set up an intranet site called Cobra Connect. And we’re just about to establish a new training department called the Cobra Academy to develop people from within.
“If you’ve got a strategy, in my view 20% of your business needs to know it, and know it inside and out. That’s not all, that’s the minimum. They wanted clarity about what the strategy was and someone to enunciate what we’re trying to achieve – then cascade it down. And that’s what we’ve tried to do for the past four months.”
Lessons from History
Lord Bilimoria is a big advocate of lifelong learning, with one of his few regrets being that he came to it late when he took Cranfield School of Management’s Business Growth Programme in 1998. Since then he’s studied cases at Harvard Business School and the London Business School.
Bilimoria says that from this he has learned that “invariably, when a company goes from one level and grows very rapidly over a short period to a much higher level, 90% of the time there’s been a leadership change in that company”.
However, executive education has also taught him exactly how others have got it wrong. “There are three ways companies take on chief executives,” he says. “One is that they bring in a high-flying top-notch person with a great track record in the industry and the founder hands over the keys and says: ‘I’ll see you when you need me and once a year I’ll come to the AGM, otherwise, don’t bother me and I won’t bother you,’ and they go and put their feet up on a beach. In the majority of cases, that fails.”
The other extreme, according to Bilimoria, is that the founder stays on, brings in a chief executive, but can’t let go and is constantly looking over his or her shoulder, second-guessing, over-ruling. “In those cases I’ve studied,” he says, “the chief executive puts their hands up and says: ‘Look, I can’t deal with this, I’m going.”
Finally, there’s the one that more often than not results in greater success. “The founder stays on, but it’s so carefully managed that the chief executive is given full leeway to run the company, bring in a new strategy and get the buy-in of the board,” explains Bilimoria. No prizes for guessing which strategy he chose.