A make-or-break decision reversed the decline of Bulmer's, turning it from niche player to national brand leader and recession-beater.
Only a handful of British companies succeeded in both surviving and prospering throughout the dark days of the recent recession. Of those which have reported increased profits every year between 1990 and 1993, most are fairly predictable - several multiple grocers and food manufacturers, a clutch of chemists and pharmaceutical specialists, a holiday tour operator, a security printer, and a small, select group of the more shrewdly managed conglomerates. But there is one real surprise in the list. While the rest of the drinks trade - beer, spirits, even wine - has put up a distinctly lacklustre performance, the long-neglected cidermakers of Hereford have been going from strength to strength.
At the end of the 1980s, the 100-year-old HP Bulmer business (founded 1887, floated 1970) was the only publicly quoted purveyor of fermented apple juice, and it had fallen on distinctly hard times. Nigel Lawson's budget of 1984 had dealt the whole industry a crushing blow. The tax increases he introduced transformed cider overnight from the cheapest drink available in the average bar to almost the most expensive (these being the days before the advance of the pricey imported lagers) and Bulmer's, like its then mainly brewery-owned competitors, was left reeling. Its earnings tumbled, its production and bottling plants faced a crisis of overcapacity, and it was forced, after a century of corporate benevolence, to abandon its policy of giving people jobs for life. Some 400 of the staff were made redundant (though only 12 had actually to be fired) and suddenly the still family-dominated board found itself fighting for the firm's life.That was the position for the next five years as they desperately manoeuvred, by diversification and retrenchment, to stay afloat. They had one or two lucky breaks - the UK distribution contract for Perrier, which they won, proved a winner, even though the margins were wafer thin, and the Jamaica beer, Red Stripe, for which they were (and are) the agents, proved something of a cult success. But increasingly they realised that drastic steps must be taken to rescue their core product, if they intended to celebrate the arrival of the 21st century with their independence intact. So in 1989 they turned to John Rudgard, their just-appointed group chief executive and requested him to draw up a plan.
Rudgard, who is now 53, had then already been with Bulmer's for 24 years and could justifiably regard himself as an old cider hand. But his background and earlier career were about as far as you could imagine from life among the peaceful orchards along the Welsh border. He was born in Britain's brewery capital, Burton upon Trent, and then left school at 18 to join Cunard, where he qualified as a master mariner and spent his early twenties helping to navigate the Queen Elizabeth and Queen Mary. Only when he married was he persuaded to come ashore. He then pitched up with Mars selling pet-foods out of Melton Mowbray. And it was from there that he was recruited, by Bulmer's then managing director, Peter Prior, to put some modern marketing direction into what had, since the second world war, become a somewhat sleepy rural byway in the general hustle and bustle of the alcohol business.
His first job was to work out some way to exploit Ted Heath's just-completed abolition of resale price maintenance and make sure that cider got its fair share of display space in the new-fangled supermarkets that were then starting to spring up everywhere. He was much helped by the fact that Bulmer's, shortly before his arrival, had launched Strongbow, with an ambitious advertising campaign designed to emphasise its macho appeal (as opposed to Woodpecker, which had become very much a 'drink for the little lady'). So there were two strong brand images to promote, and for the best part of the next two decades Bulmer's ciders enjoyed a modest but genuine renaissance. But progress was slowed down appreciably when Denis Healey (then Chancellor) increased duty by 3p in the black year, 1976. Another 3p from a later chancellor - Lawson - brought everything to a grinding halt. Profits collapsed and the Stock Exchange promptly chopped a straight £100 million off the company's market capitalisation (which still stands at only £232 million today).
Five years later it had become brutally clear, both to Rudgard and his chairman, Esmond Bulmer, that small, cautious, incremental moves of the kind normally advocated in management textbooks would be wholly inadequate if they seriously wanted to reverse the company's decline. So the new managing director came up with what must qualify as one of the boldest and riskiest schemes ever endorsed by a public-company board. He proposed that Bulmer's already substantial promotional budget should be doubled, at a stroke, to £16 million. Only in that dramatic way, he argued, could the company hope to relaunch itself in an ever more crowded marketplace, and force both customers and the controllers of shelf space to sit up and take notice. But win or lose there was no disguising the initial impact on the company's accounts. If the board agreed to go along, the next year's reported profits would inevitably drop by at least half, and only then could recovery be realistically expected to start.
Esmond Bulmer, now 58, clearly remembers the directors' meeting at which that make-or-break proposal was agreed. He himself recognised from the start that there was probably no alternative. But many of his colleagues were naturally more dubious. There is little doubt in his mind that, in the end, it was only the fact that 65% of the shares are controlled by the 98 people who make up the current membership of the Bulmer family (of which he is head) that enabled the proposition to go through. 'The family played a crucial part,' he says now. 'If we had been a typical business, with ownership widely spread and accountants monitoring every step, it could never have happened.' But he reckons that a large part of Bulmer's resilience and strength is due to the fact that its has so successfully negotiated the pitfalls that cause so many businesses to break up. 'After the first generation, where everyone pulls together, it is essential for the second generation to bring in dynamic outsiders. And after the third generation, survival depends almost entirely on the willingness of the family to stand back.' Fortunately, in this case, they were backing a winner. The Rudgard strategy has triumphantly justified itself, and the company, in the process of executing it, has moved from a niche player to a national brand leader, and possibly quite soon, an international force.
The five-year figures tell a consistent and gratifying story. Since 1989 every significant financial category in the accounts shows an uninterrupted annual improvement. Sales are up, though only by a relatively modest 28%. But profits have regularly outstripped turnover, and risen by 86% at the pre-tax level. Earnings per share register even greater gains - almost 120% since Rudgard got his go-ahead - while both interest cover and dividend cover have markedly improved. Only borrowings have gone slightly the other way. But even the gearing, though up from 22% to 31%, is hardly a cause for concern.
During the time those results were racking up, the total cider market has been steadily expanding, to reach its current level of 85 million gallons, worth around £750 million a year. Of this, more than three-quarters is split roughly 2:3 between draught and packaged. In draught, Bulmer brands now account for more than 50% of sales (with one-third going to Strongbow alone, as the clear market leader), while in bottles and cans Taunton's highly succesful Diamond White just outsells the combination of Strongbow and Woodpecker. Altogether, though, Bulmer's has edged up to command a 47.4% share, against Taunton's 36.1% and Gaymer's 12.6%.
As Esmond Bulmer readily accepts, the vital catalyst - and a key ingredient in the Rudgard plan - was the Monopolies and Mergers Commission's (MMC) report on competition in the beer industry. The recommendations arising from that document remain highly controversial and contentious as far as the brewers themselves are concerned. But for cider in general and Bulmer's in particular they have proved to be almost wholly beneficial.
Five years ago Strongbow and Woodpecker were effectively barred from more than half the pubs in Britain, which were the protected preserve of brewery-owned brands like Old English and Dry Blackthorn. But now, under the new MMC arrangements, the proprietors of these labels, Gaymer and Taunton, have been encouraged to re-achieve their own independence by the management buy-out route, and are now either already public companies in their own right or well on the way to flotation. That makes them in some ways more formidable, or at least, more dedicated rivals. But more significantly it frees up access to the all-important pub, club and hotel trade, so that anyone is free to have their own tap on the counter, as soon as they can convince the landlord it will pay him to instal it. That and the wider acceptance of cider as a social drink for both men and women (especially when couples go out together) has played a large part in the expansion of volume sales. But at least equally important, as far as profits are concerned, has been an explosion in what the trade calls 'premium brands'.
Even Bulmer's is ready to admit that Taunton was ahead in seeing the opportunities here. Way back in the late 1940s, a group of ex-servicemen who had perfected their cider-making skills in the unlikely setting of a German PoW camp, launched their pioneering Merrydown label and demonstrated that there was a good market for a high-quality but reasonably-priced drink that people could take to parties. But no one else chose to follow their lead until a couple of years ago, when Taunton took the hint with White Diamond and found they had a runaway hit on their hands.
They were not alowed to enjoy it alone for very long, though. In 1990 Bulmer's had the chance to buy another small brewery-owned cidermaker called Symonds, which its parent, Greenall Whitley, had lavished with superb technical equipment but no longer had any use for. Its £7 million cost was fully justified, in Rudgard and Bulmer's view, by its state-of-the-art expertise. But it also brought with it a useful and unexpected bonus - a highly palatable but almost wholly unexploited brand called Scrumpy Jack. This provided Bulmer's with its next major asset, an effective entry card to the newly-booming premium market. Scrumpy Jack has been clocking up a sensational sales record - around 56% increase every year. Available on only 800 pub taps when it originally changed hands, it now spouts merrily from around 13,000, and is already Britain's fifth most popular draught label.
Cider-makers, however, can no more afford to rest on their laurels than any other variety of consumer-products provider. Bulmer's prides itself on supporting one of the highest R and D budgets (in proportion to its size) to be found in British industry. Recently it won one of the CBI's fairly stingily-granted Innovation Awards, and its £2.5 million Technical Centre (where £1 million worth of new-product tests are currently in hand) would look impressive even by the standards of Glaxo or ICI. Projects include an in-depth study of the fundamental chemistry and biology of cider-fermentation and a major programme in conjunction with Bath University to create a flavoursome and saleable version of low-alcohol cider.
First fruits of this continuous-development policy include Black Jack which, as its name implies, looks more like Guinness than cider, and does indeed contain a stiffening of hops and malt, and Holkham, another serendipitous find in the Symonds portfolio, which is more like a fine wine.
This, in turn, is seen as a major potential ingredient in the drive to establish significant export markets for this most English of drinks. With Australia already well on the way to steady profit, Rudgard's other important recent acquisition, the Belgian Stassen is seen as a promising bridgehead to the single market, and it is recognised that if the Contintentals can be persuaded to try this exotic Anglo-Saxon beverage in any useful quantity, it must be promoted as an alternative to wine rather than ale.
Meanwhile, though, Europe is seen in Hereford as a permanently present threat as well as a marketing opportunity. Down the years Brussels has often contemplated changing the fiscal status of cider (always in the interests of harmonisation, of course) and that, if it ever happened, could be even more damaging than the efforts of Healey and Lawson combined.
So far that danger has been averted (largely thanks to the alertness of Esmond Bulmer himself, who developed many political skills - and invaluable contacts - during his 14 years as a Tory MP and parliamentary private secretary to Sir Leon Brittan). But for cider makers, as for other mortals, the price of liberty is eternal vigilance, which is perhaps why the Bulmer's chairman is so fond of quoting one particular Chinese proverb: 'A wise man never sees a wholly cloudless sky.'