n Wolves has fought off Pubmaster and is now looking to a future where more sales to the multiples will be key says Tim Palmer Every headline featuring Midlands brewer Wolverhampton and Dudley for the last 12 months has labelled it "beleaguered"or "fighting for survival" as it staved off the hostile bid from Pubmaster. But it fought back hard to retain its independence and now plans to lead the ale market. This includes a rapid expansion of its business through the major supermarkets and off licence chains. Currently this accounts for 20% of the company's profits but the board is determined to increase that to 25% quickly. Its beer business is focused behind two key brews which have distinctly different roles to play ­ Banks's and Marston's Pedigree. Banks's is the dominant ale brand in the Central region and the brewer is not looking to extend it beyond its heartland. It is heavily supported in the region with its own TV campaigns, and this will continue. Latest figures show the brand is up 18% in a total ale market down 5%. Wolves' national player is Pedigree, the number two national cask ale behind Bass. It also has a heartland in the Midlands where it has 33% of the cask ale market. The objective is to make the brand the number one nationally. Martin Womack, md of brands, has rebuilt his sales team to put more weight behind Pedigree and in take home he says the brand is now recording 40% year-on-year volume growth. He has increased the budget behind take home to £2m, which, he believes, is more than double any of his competitors in the premium bottled ale sector. "We recognise the need to increase our presence in take home and reduce our dependence on our own estate. We are going to be more aggressive and I am putting my money where my mouth is. I think we have the strategy and the people to deliver big volume growth, and the brand still only has 3% of the take home ale market. "This growth has been generated by price deals, but I will do as much as it takes to make people sit up and take notice. I want 50% share growth and if that means aggressive pricing, then so be it." The 12-pack of Pedigree bottles has been on offer at £9.99 ­ a big cut when compared with the rsp of the single bottle at £1.59. At the same time four-packs of the cans have been down to £3.49 from £4.89. "No one else is being this aggressive or targeting the premium ale sector in this way," maintains Womack. "We want to become known as the expert in our field and the way has been left clear by the big boys who have moved away from premium ales." The beer has the benefit of availability in the brewer's own pubs but Womack's plan to build on a national basis is based on his strategies for the take home market. In the past the brewers have extended their brands from their pubs to the off-trade. The exception to this was Boddingtons Draughtflow from Whitbread which built its brand franchise in the supermarkets and off licences. Womack plans to do the same for Pedigree. "We are keen to develop the bottle and can, and piggy- back this into the on-trade," he says. He will play on the company's strengths which include its power base in the Midlands and its acknowledged heritage in brewing. Pedigree has a unique selling point in that it uses the Burton Union system for brewing ­ something no other brewer utilises. This will remain, even though it puts up the cost of brewing. But although the major multiples are targeted, and, Womack is prepared to push Pedigree hard, it will not be at any price. At present, he is in the comfortable position of not having to rely on volume through the big grocers. Wolves became a potential target last year after it had taken over two smaller regional brewers ­ Marston and Mansfield ­ in quick succession and was struggling to integrate the businesses. Pubmaster, led by John Sands, reckoned it could break up the business and make money, but the team at W&DB turned their operation round and put in some upbeat results. It was a close run thing. Wolves only just managed to convince enough investors that it would deliver a good return. By the time Pubmaster's bid had expired, the rival firm had commitments from 47% of the shareholders. Ralph Findlay, who stepped in as chief executive when David Thompson changed roles from md to chairman, says the battle was over the valuation of the cash bid of 513p a share. "We maintained that was not enough and were able to show a strong trading performance across the board over the last 12 months." Shareholders' opinions will also have been swayed by Wolves' promise to return £200m to them, the first £100m by the end of this year and the second by June 2003. This is being funded by the sale of 130 pubs and its Concepts division featuring a range of restaurant and pub initiatives. Despite the close call, Findlay does not believe this puts the company under any extra pressure, even though there are a number of potential predators who could still consider the break up value high enough to make a bid, and international players who might see W&DB as a way into the UK market. Findlay maintains: "The changes we have now made have strengthened the business and the board has worked together as a team." Much was made of Thompson's move to chairman, but Findlay says that change was flagged up in May 2000. The planned handover was scheduled for this January but delayed until April. Thompson is the last link to the family which founded the company at the end of the last century. One of the reasons W&DB became a takeover target was because of poor performances in the first half of 2000. This was partly the result of a discounting programme which began at the end of 1999 and did not produce the required results. "We put those margin issues behind us and set about improving them, and made changes to the company which gave the shareholders reason to hang on to their shares," says Findlay. This includes investing in its managed pub estate, putting more focus into community pubs, the creation of new pub concept Boston Local, and a number of disposals including the Pitcher and Piano high street outlets. With four breweries, it had considerable overcapacity so it has decided to keep the Marston's brewery in Burton and the Banks's brewery in Wolverhampton. But Cameron's (in Hartlepool) is to be sold to Castle Eden and the Mansfield plant will be closed at the end of the year. There was a chance Mansfield would be the subject of a management buyout but Findlay says this won't happen. By the first half of this financial year, which runs from the beginning of October, the brewer could point to strong results with a 25% increase in profitability. Like-for-like sales in the managed house estate in May were up 3% and in June they were 6% ahead. Full results for this year are expected to show profits of £76m, 17% up on last year. Part of this is the result of a restructure which has moved it away from the vertically integrated operation that used to categorise the British brewing industry. In the past, brewers owned the methods of production and their main routes to market ­ the pubs. They also owned or controlled the distribution system in the form of large fleets of dray lorries. Various investigations by the Monopolies and Mergers Commission and government ministries have led to the sale of large numbers of pubs and the emergence of powerful standalone pub companies. Wolves still has its own estate, but the emphasis has been changing. The operation has been divided into three divisions: the managed pub estate, which contributes 60% of the turnover and profitability; the tenanted pubs which represent 20%; and brands, which account for the remaining 20%. The tenanted estate has been growing fastest as the company has been selling managed pubs and transferring smaller ones into the tenanted estate. Within the brands division, the company has stopped producing own label out of Mansfield, and cut back on contract work. Findlay says: "They all have targets and these have been communicated to our investors, and we know we will be judged on how we meet those targets and, of, course, I am confident we will. We have not set about increasing volume, but have reshaped and reorganised, and by the end of this month we will be in the position we want to be. Over the past three years we have sold 800 pubs and transferred 200 from free trade to tenancy." The company has also cut back on its free trade loan book. This is the method by which brewers secure supply agreements with independent pubs in return for loans at preferential rates. Findlay says: "This was running at £100m and not all of it was delivering profit, so we have been getting our money back and it's now down to £50m." The remit for the brands division is to generate more of its turnover from outside the group in the off and on- trades. Its chief targets will be the rapidly growing number of pubs free to choose their beer suppliers. As fewer are tied to other brewers, there are more opportunities to sell the Wolves brands further abroad. The threat to its business over the last 12 months focused the minds of everyone at W&DB, with the result that it was able to show the positive figures it needed to. "Under bid conditions we couldn't recruit people and we couldn't win new business," comments Womack. "People in the off-trade did not want to expand their operations with us because they did not know if we would be around in six months. We had to defer innovation on new packs because the trade was not receptive and, at the same time, our competitors were making the most of the opportunities this situation presented." So, now the restraints are gone, can Wolves maintain the impetus? Findlay is convinced it can and says the "foot is staying firmly on the gas". {{FEATURES }}