British companies are being told to export more to boost business, but if small businesses are hoping for a sudden windfall, think again. Selling internationally can put a heavy strain on the company’s balance books, as the entrepreneurs behind Innocent Drinks, the UK’s top smoothie brand, found out.
In the five years since Innocent Drinks decided on an international push, the company has made a loss every year. ‘International expansion has been difficult and it’s been expensive,’ Richard Reed, one of the company’s three founders who's currently appearing in the BBC's Be Your Own Boss, told MT at an international trade conference hosted by the British Chambers of Commerce (BCC). ‘We’ve found the process much harder, much longer than we thought, and it’s burned through more money than we expected.’
Innocent was founded in 1998, when three friends quit their jobs to capitalise on the accelerating demand for healthier drinks; and it's now the UK’s leading smoothie brand (it’s also majority-owned by Coca-Cola, which bought a small stake in 2009 and upped it to 58% a year later.)
In 2007 Innocent decided to push the brand internationally - a move which turned out to be an expensive decision. The UK business is profitable but overall the company lost £10.9m in 2008, and has continued making losses ever since. Last year, losses came in at £9.8m. In 2012 Reed expects Innocent will finally make a profit again - but only just.
The main difficulty, he says, has been the difference in the structure of supermarket chains abroad. ‘In other countries, the supermarkets aren’t as brutal in their negotiations, but they’re not as good at executing. In the UK, if you agree a deal at a supermarket HQ that your product is going into 400 stores, then that will happen. In other countries, that’s not a guarantee. It’s a total nightmare.’
Sweden has proved the hardest challenge. The co-operative structure is still the favoured method in many of the country’s supermarkets, which means local stores run almost autonomously. ‘We’re failing in Sweden. It’s just not working,’ Reed says. ‘We’re going to have to pull out of a couple of markets – particularly the countries where we’ve been for four years and have lost money every single year.’
With the UK economy stalling (although Thursday’s GDP figures suggest this may be on the turn), the government has been encouraging more UK businesses to export abroad to boost orders. ‘Exports are going to be vital to any sustainable recovery in the UK. In Germany, exports make up 46% of GDP, so there is no reason why with the right support, we can’t hit the 40% target here in the UK,’ The BCC’s director general John Longworth said.
Perseverance is key if British companies want to make their product a success internationally. Innocent is now the number one smoothie maker in all of its 17 European markets, except Sweden. But it’s been difficult, Reed says. ‘In Germany it was difficult to get the brand landed and get any sort of meaningful distribution. Eight smoothie brands started in Germany at the same time. So we found it really brutal, although we have grown from being number seven in the market to number one. Our entire international operation has been a lossmaker. But at what point do you stop?’
Reed chatted to MT during a Google+ hangout organised by DHL. See the video here.