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Back-from-the-brink Merrydown agrees sale to SHS

16-Feb-2005

Merrydown, the British beverage group whose focus on adult soft drinks has helped it overcome the declining fortunes of cider, has agreed to a takeover by SHS, a consumer goods sales and marketing specialist. The group hopes that the greater financial clout of its new owner will help it build on the good work of the last few years, in particular for the Shloer brand, writes Chris Jones.

SHS, which also owns the Beverage Brands business best-known for its WKD brand of alcopops, has been a minority shareholder in Merrydown since the company's refinancing in 1998, and has also acted as the cider maker's sales agent since that time, so it came as little surprise when the marketing group emerged as the leading bidder for Merrydown at the end of last year following discussions sparked by an unsolicited offer from another company.

After nearly four months of negotiations, SHS has agreed to pay 170 pence per share for Merrydown, a premium of 78.3 per cent over the average closing price for the six months to 9 November 2004, the last business day prior to the announcement by Merrydown that it was in discussions with regard to a possible offer.

As a result, Merrydown is now valued at around £36.7 million.

The new owners are keen to build on the momentum that Merrydown has generated since its refinancing in 1998. Joe Sloan, chairman of SHS said: "As a leading sales and marketing operation in the fmcg sector in Great Britain and Ireland, we at SHS are in the business of building quality brands. We are therefore delighted to be adding Shloer and Merrydown Cider to our portfolio and look forward to continuing the growth that has been achieved in recent years."

Despite the undoubted success of the current Merrydown management in turning the business around over the last six years, there are few regrets at selling the company. "Whilst the directors remain confident of Merrydown's future prospects they recognise that a larger organisation such as SHS has the resources to grow the brands faster than Merrydown can as an independent company," said Andy Nash, chairman of Merrydown.

Like its main UK rival HP Bulmer, Merrydown saw its fortunes decline sharply in the 1990s as a result of cider's increasingly old-fashioned and downmarket image. Premium beers and alcopops proved a greater attraction for cider's core audience - young drinkers - and attempts by cider groups to tap into the same trend with premium bottled variants were largely unsuccessful.

Bulmer looked to other markets to offset its flagging performance in the UK, but moves into China and the US were ultimately unsuccessful, leading to a succession of losses and an eventual takeover by Scottish & Newcastle in April 2003.

Merrydown took a different approach, however. With just two brands in its portfolio -Merrydown cider and Shloer, a grape-based adult soft drink - and one of them (Merrydown) trying to compete in a cutthroat market where margins were reduced to almost nothing, the group had little choice but to focus on building its minor brand.

"Almost by default we were forced to look closely at the Shloer business for the first time," chief executive Nigel Freer told FoodandDrinkEurope.com last year. "There was no great thought put into the matter, it was simply a case of looking at the brands we had and what we could do with them."

"We were 70 per cent cider, 30 per cent soft drinks in 1998, and the likelihood is that we would have stayed that way, if the cider market had remained buoyant." But the cider market had been far from that for some years, with a 'stack it high, sell it cheap' strategy adopted by "competitors with deeper pockets" essentially making it impossible for Merrydown to make any money in the cider market without a radical change of strategy.

So Shloer - acquired from GlaxoSmithKline in 1993 - became the focus of the company's efforts, with a new bottle design and a marketing makeover allowing it to tap into the growing trend for 'adult' soft drinks such as Fruitopia and Oasis, less sugary than Coke or Pepsi. Shloer is now one of the market leaders in adult soft drinks, with sales up more than threefold since 1998 to £13.96 million in 2004.

The cider business has also weathered the storm, posting sales of £6.37 million in 2004, thanks to a focus on the premium Merrydown Vintage brand.

Luck has played a large part in Merrydown's turnaround - Shloer was the only alternative brand in the company's portfolio yet it exactly met the requirements of the market in the late 1990s - but there has also been a lot of hard work and many difficult decisions - none more so than the closure of its cider press last year which meant an end to Merrydown making its own cider.

But it is these tough decisions that have brought Merrydown back from the brink over the last six years, and which have created the buoyant, profitable company that SHS has now acquired. With that company's expertise in brand management now being brought to bear on both Shloer and Merrydown Vintage, the future is looking rosier than ever.

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