Halewood ‘actively looking’ at rum brands
Just over a year since taking the reins at Halewood International, CEO Stewart Hainsworth tells SB about his prosperous plans and potential spirits acquisitions.
*This was first published in the May 2016 edition of The Spirits Business
Astute Commuters on the UK’s London to Liverpool line may have noticed a recently familiar face swelling their ranks over the past year. Zipping up and down the country’s railway each week has become routine for one of the spirits industry’s newest CEOs.
But while covering 200-odd miles in just over two hours is fast for some, it pales into insignificance when compared to the pace of transformative change this catalyst individual has generated so far in his short tenure at Halewood International.
The executive at hand is Stewart Hainsworth; the former Russian Standard international CEO with a penchant for turning ailing enterprises around. Once the youngest FTSE 100 director, the ex-Gallaher commercial chief has developed a knack for leading businesses out the other side of tough times and back into profitability.
Much of his career has been spent in Russia in private equity-backed businesses across the international tobacco and alcohol sectors, before he took up a role repairing the balance sheet of a business in the gardening industry. It was from there that he was headhunted for the top job at Halewood.
When we meet in the company’s new London office – open just a matter of weeks – it is perhaps unsurprising that his energy, vision, yet simultaneously calmly focused demeanour come to the fore as first impressions. “I like to win, I am extremely competitive, extremely ambitious and therefore this suits my personality,” he evaluates himself in his new role.
Halewood International is probably the largest independent drinks player yet to establish itself as a household name. The Liverpool-based firm has a turnover of £321 million, a footprint in 75 countries and shifts 20 million physicals a year. Yet its biggest spirits brand, Red Square Vodka, has shrunk back from the consumer psyche in its home UK market, its demise in brand recognition indicative of the fortunes of the rest of the company. What changed?
The Halewood story is a bittersweet one. Founded 38 years ago by entrepreneur John Halewood, the group flourished through a series of acquisitions and new product development – it’s non-spirits stable includes Lambrini sparkling wine, Tsingtao beer and Crabbie’s Alcoholic Ginger Beer. Then Halewood died suddenly in 2011, leaving the family-owned firm disoriented in the wake of grief.
“The thing that was very odd about [the company] Halewood is that they didn’t have a group CEO,” Hainsworth explains. “John Halewood was the group CEO. And then subsequently after that, until I came in in June last year, there wasn’t one CEO running the whole business as a group.” He believes this is where the malaise set in.
“There was no group strategy; there were individual companies pursuing their own individual strategies.” On day one in the new job, he discovered he didn’t have a financial director – or indeed any senior management team at all.
“We had some very difficult numbers… Halewood ended up posting quite a large loss,” Hainsworth recollects, his first month in-post coinciding with the end of the financial year. “I can tell you now that this year we’ll be back in profitability, and then we’re looking for a growth rate of 20% per annum.”
How has he achieved this change in fortunes? Challenge number one in reversing the run of play was to recruit a brand new, ready-made team (“Instead of hiring individuals, we’ve actually hired teams that already work together – it’s very common in the finance world to hire a whole team”) and hit the ground running.
The new line-up includes former Gallaher executives Paul Murden and Andrew Murray as Romania managing director and head of operations respectively; and ex-Russian Standard directors John Bradbury, Alan Robinson and Richard Huck as UK managing director sales and marketing, group financial director, and regional managing director.
“To be fair to [the former team], a lot of people had kind of lost interest in the business and it was just a job. What we said was ‘this is our vision, this is where we want to go, this is leadership. Let’s get this done. Because we want to be in business in five years’ time’.”
The next step – and arguably the most challenging one – was to overhaul the company culture and inject some ambition. “Cultural change is the most important thing,” Hainsworth states. “Because you can tinker around with processes and everything else; if you don’t change the culture, inevitably change happens very slowly, and this is a business where change had to happen quickly.” Was it a painful process? “For us, because the whole new senior team is there, I think that challenge of getting the hearts and minds of the organisation to buy into your vision is the harder part. The risk is that you lose the core of the business in terms of that.”
Critical to Halewood’s turnaround has been the implementation of a spirits-led approach, Hainsworth states, and that in itself came with a raft of additional trials.
“Crabbie’s was the be-all-and-end-all for Halewood when I came in,” he explains. The brand, recently valued at £60 million, was at the forefront of a marketing drive which included a lead sponsor slot at the renowned Grand National horse racing meet at Aintree.
“They didn’t have any real focus on spirits, they didn’t have a focus on anything. They have a fantastic, award-winning premium gin in the middle of a gin revolution, and they weren’t marketing it. When I was at Russian Standard I remember Red Square coming within the top ten vodka brands and growing quickly. I walked into Halewood on my first day and asked to see the Red Square brand manager – we didn’t have one. I asked to have a bottle of Red Square brought to my desk so I could try it – we didn’t even have a bottle.”
Re-centring spirits has had a unifying effect across all the entire geographic reach of the business. From the ready-to-drink (RTD) operations in South Africa to the Romanian wine subsidiary, the spirits range is infiltrating. “The change that I’ve made is to give spirits the prominence it should have within this business – because we have a fantastic range of tertiary products that have not been focused on.”
To that end, the Romanian business is now wine plus spirits, the UK is Crabbie’s and Lambrini plus spirits and South Africa is RTD plus spirits. After all, the breadth of portfolio was one of the factors that attracted Hainsworth tothe role. But it is squandered if a “nonsense” corporate structure means each individual division acts as a non-communicative island.
Reimagining Red Square
Red Square remains the biggest brand by volume in the Halewood stable – “if we added up all the elements we’re over 2.9 million cases”, says Hainsworth – yet at the top of the NPD to-do list was a complete reformulation and redesign. Previously a molasses blend liquid, Red Square is now a “seven-times distilled” 100% pure grain vodka and carries a revamped bottle design to match.
“It was an orangey-red, a bit like a Marlboro red if we go back to my cigarette days,” Hainsworth says, referring to the previous tone used on-pack. “I know with those kind of bright orangey-reds, they do tend to signal value. What I wanted to do was signal the stage above.”
Moving any product up the premiumisation ladder is tricky, especially one that has lost its way in certain markets. “I realise with repositioning, you’re not suddenly going to take a value brand in people’s perspectives and then make it premium. But what you can do is move it up a notch or two.”
In addition to the expected upswing from the reformulation and pack redesign, Hainsworth has also introduced a couple of Red Square 20% abv vodka-liqueur “hybrids”. Red Square Toffee and Red Square Sloe tap into the wider market trends for lower abv, highly mixable options. Both products went from inception to shelf in just three months – the newfound ability to flex another example of the “step change” in Halewood’s corporate culture. Factor in the Reloaded variants and the relaunched Red Square Ice in both 750ml and 250ml formats, and it’s clear the pace of change has been blistering.
The Whitley Neill line too has experienced a substantial overhaul. Hainsworth “inherited” the “Africa-inspired” gin on joining – Halewood acquired the brand from its founder Johnny Neill in 2009 – and he has since embarked on a “category management retail perspective of having good, better, best”.
So soon to hit the market will be new “craft” range JJ Whitley, which includes JJ Whitley London Dry Gin and Elderflower Gin, plus JJ Whitley Potato Vodka and Rhubarb Vodka, positioned slightly below Whitley Neill and thus creating a ladder across both categories. “And we have a value gin as well, Belgravia, which is in the process of being redesigned at the moment,” he adds.
“The thing I liked about this was the opportunity to use potato vodka at a mid-price point,” Hainsworth explains. “There are a lot of premium vodkas out there that are potato vodkas, but I thought if we can come out with something mid-priced, it gives people more opportunity to try it, or for the higher on-trade to use it for pouring.” It retails at £17.50.
Halewood hit the drinks headlines in March when the company took a 50% stake in The Pogues Irish Whiskey, a transaction that marked a step-change for the brand in terms of both category development and the structure of its brand partnerships.
Halewood already had a distribution-based relationship with West Cork Distillers, the site which produces The Pogues liquid on behalf of its band member founders. But the partial acquisition brought with it Halewood’s first ownership foray into the Irish whiskey category, one which Hainsworth has a close eye on.
“What you’ve seen with the gin revolution is a load of 25 to 35-year-olds drinking gin, which 20 years ago was an over-40s drink. So where are they going to go after they get bored with gin?” Irish whiskey’s “softer”flavour profile seems a logical next step.
So was it a surprise that the opportunity to purchase 50% of The Pogues’ whiskey business transpired? “No, we went after them. We were quite forthright to do that.” And is this example of taking a stake or entering into a joint venture agreement part of a new, concerted approach?
“I think ‘grand plan’ is probably stretching it a bit, but I think in general it’s about our attitude. We’re willing to work with anyone who we think will add to our portfolio overall as a proposition – and whether or not that is an equity partnership, I think that is probably our preference.”
Without going into details, Hainsworth makes clear we can expect to see more deals of this type from Halewood in the coming months. “We’re actually talking to a number of parties,” he confirms, with Irish whiskey and dark rum high on the agenda. In March 2016, Corby Spirit and Wine Limited, parent of Lamb’s rum, moved distribution rights from Halewood across to Pernod Ricard, punching a hole in the category mix.
“We’re actively looking at rums at the moment. Because I think we’re fairly well covered on whiskey, gin and vodka with our own innovation, there may be one or two additions into the portfolio from an acquisition point of view very soon,” he counters.
“But in terms of rum I think there are opportunities there, particularly looking from an inorganic and also an organic point of view. I also think on the rum side… it’s about touching on expertise and provenance of liquid; that’s where joint ventures are interesting.” And is he comfortable without a Scotch in the range? “Wait and see on that one. Whisk(e)y in general is interesting, whether it’s Scottish, Irish or even English.”
Whether it’s the private equity background or simply that competitive spirit, Hainsworth also seems to have a hankering for start-ups. “We’ve got the marketing, we’ve got the distribution, we’ve also got the make-and-pack facility – our plant up in Chorley actually already produces for everyone in terms of the UK market. We make small companies global because they have access to our global network,” he stresses Halewood’s compatibility as a partner. “We’re very entrepreneurial, we like to think we’re nice guys to work with as well, but it’s about innovation – and hopefully that’s a nice mix.”
Current and forward-looking projects point to that hungry, opportunistic side. Even Willow Water Limited, Halewood’s Lake District spring water division, is in Hainsworth’s sights. “I can start distilling from mineral water sources, so I’m bringing now Willow Water to do some distilling,” he explains. “I’m starting this process; it’s all part of our next stage of NPD.”
And while the core UK, South African and Romanian markets currently hold the lion’s share of the business, China and Thailand show promise. A joint venture manufacturing and sales operation is now active in China, while the Thai division was more the result of a chance encounter.
“We had a guy approach us from Formula 1 who wanted to come up with a joint venture. I can’t tell you exactly who he is, but he’s a very well known guy.” Hainsworth hints. “His son owns a number of pubs out in Thailand, and he said ‘look, I really like Lambrini, would you be open to doing a joint venture?’ We had the conversation and the next thing I knew I’d agreed to doing a JV with them.”
Hainsworth sees Thailand as more of a “toe in the water” for spirits. An ASEAN nation, the market will act as a springboard in to other countries in the bloc. “So if we ever take this to the next level which is to go onshore… well you basically get preferential duty rates.” He also cites the low set-up costs and the huge tourist industry as reasons to explore the country’s potential.
Opportunities lie closer to home, too. From his time in the horticultural industr y, Hainsworth has identified “the rise of garden centres” as a prospect for restaurant sales, gifting and pick-up purchasing. Global travel retail is also on the agenda – while The Pogues and Whitley Neill have made some in-roads, ex-Rémy Cointreau GTR exeirreplaceablecutive Simon Roffe has been recruited to drive the channel.
As Hainsworth continues to transform the product offer, the “extremely important” on- trade becomes ever more relevant. From a team of two, on-trade personnel has swelled to 22 – and the channel looks set to become a crucial focus from 2016 onwards.
With Red Square, Hainsworth says: “We actually had quite a difficult situation when I came in because it had just been left to the grocers and in the on-trade it had drifted off. I’ve kind of turned that on its head: at the moment we’re not in any grocers; I’ve actually come out of one grocer because I couldn’t get the right positioning. So we came out of the grocer and have gone heavily investing in the on-trade, and the good news is that within 11 months the volume we lost in the grocer is now being made up by the on-trade.”
And what a rollercoaster 11 months it has been. “This is my quote they all keep throwing back at me: ‘The only path to success in business is by taking risks’. And I think people tend to forget that you can’t play it safe,” Hainsworth surmises. “You can’t just sit there and say, ‘OK, I’m just going to do what I did last year’, because inevitably the market is moving all the time.”
Despite the frenetic pace of change, the gravity of the Halewood turnaround, and no doubt the pressure that comes with it, Hainsworth seems not exactly content – can an individual constantly pursuing improvement ever be? – but at least satisfied. For now.
“It’s really pleasurable in the fact that this is actually my dream job. It’s the ability to innovate and do things that you just don’t get in bigger businesses with established brands – here you have everything to play for.”