Frank Weise spent nearly 30 years at two of America’s great brand marketing machines, Procter & Gamble Co. and Campbell Soup Co. When he was passed over for the top job at Campbell in 1997, the financial specialist decided, he says, to “try something different.” Weise took a job running Confab, a family-owned supplier of private label incontinence and feminine hygiene products that was heavily in debt and in dire need of help following the death of its CEO. He turned Confab around, and the company was eventually sold to Tyco International. In 1998 Weise took on a similar rescue mission at another “no-name” marketer -- Cott Corp. -- where the 58-year-old is again succeeding.
Toronto-based Cott is the world’s largest “retailer brand” soft-drink supplier, selling its low-priced products under the in-house labels of major food merchandisers that include Albertsons, Safeway and Wal-Mart Stores in the U.S., Loblaws in Canada and Sainsbury’s Supermarkets in the U.K. Riding the global growth of these chains, Cott is thriving. The soft-drink maker reported record first-quarter 2003 sales (up 18 percent, to $295 million) and earnings ($10.5 million, versus a loss for the same period a year ago), following record 2002 results. Its shares, listed on the Toronto and New York stock exchanges, were trading above 20 in June, up from a low of 13.80 in 2002, though off their 52-week high of 21.86. As recently as early 1999, Cott shares were below 3.
Things were looking grim when Weise arrived. Following a disastrous expansion into a variety of private label products in the early 1990s, Cott was disorganized and losing money. Gerry Pencer, the entrepreneur who’d built the company, had just passed away, leaving it directionless. However, the private equity firm Thomas H. Lee Co., which now holds three board seats and 31 percent of the shares, saw Cott’s potential and bought its initial stake at virtually the same time the new CEO joined.
Weise refocused Cott on its core business of supplying beverages to major grocery retailers, jettisoned other businesses and tightened relationships with key clients. In 2001 he made a $98 million deal with Cadbury Schweppes to buy its RC Cola product formulation, on which Cott based its private label drinks. Cott also got an RC product research facility and RC International, which includes RC’s units outside North America, Mexico and Puerto Rico. The purchase gives the company a platform from which to follow important customers like Wal-Mart as they expand worldwide.
Weise recently discussed Cott’s turnaround and prospects with former Institutional Investor Assistant Managing Editor Subrata Chakravarty.
Institutional Investor: What’s it like to compete in the same market with Coca-Cola Co. and PepsiCo and be stuck in the middle of their fight?
Weise: Coke and Pepsi are good companies; they are competitors. We look at ourselves as competing in a special segment. You’ve got the national brands, which are about 80 percent of the market, and Coke and Pepsi comprise about 80 percent of that group. About 20 percent is our special segment. And half of that is retailer brands, or private label, and the other half is basically all the mom-and-pop brands, all the small regional brands. Overall there is about a $30 billion market across North America and the U.K. Our segment, retailer brands, is growing significantly. Retailers today are trying to differentiate themselves, and one of the differentiation points is the retailer brand of programs. For example, you can buy Tide or Colgate at any retailer in the U.S., but you can only buy Sam’s Choice at Wal-Mart. You can only buy Select at Safeway. These retailers are creating their own umbrella brands.
Why, aside from differentiation, are these brands growing?
The more consolidation that takes place, the higher the retailer brand shares. If you go to the U.K., 40 percent of the business is retailer brands. It’s about the same -- 35 to 38 percent -- in Canada. If you come down to the U.S., it’s about 16 percent. The key difference is consolidation. The top five groceries in Canada have 80 percent of the market. The top five here only have in the 30s. That’s changing. Wal-Mart didn’t even exist ten years ago in food. Today it has a 12 percent market share -- and growing. There’s immense opportunity to ride the wave of not only retailing consolidation but of differentiation.
In my local supermarket it seems as if either Coke or Pepsi is having a promotion every single week, bringing their prices down to below that of the house brand. Isn’t it the house brand that loses out?
That can happen on occasion, particularly in New York. But we typically sell, as a retailer brand, 20 to 25 percent under the national brands. We represent a value proposition.
How do you differentiate, say, Sam’s Choice from Safeway Select?
They’re different color formulations. We present the retailer with several color formulations -- for diet, for regular -- as well as different lemon-lime products, different oranges. We will do extensive consumer research with the retailer’s customers. Coming out of that research, typically, is a formula. The Wal-Mart formulation would be a little bit sweeter tasting than, say, a Safeway formula.
How do you cope with the fact that you have no control over the quality of somebody else’s product that’s sold under the same label? You bear the consequences if a shopper tries something else first, hates it and then doesn’t buy your product as a result.
The retail trade has become very sophisticated. Particularly, the Albertsons, the Safeways, the Wal-Marts and Costcos. Most of them test their retailer brand products against the national brands. The products must be national brand equivalent -- equal to or better than the national brand -- to carry a certain label.
Cott had remarkably high growth between 1990 and 1995. Then it fell flat on its face. What happened?
First, there was an entrepreneur named Gerry Pencer, who’d taken over a family-controlled, private label soft-drink company in Montreal from his father. He went to RC Cola and got them to give him access to derivative formulations. That gave him a high-quality product. He then developed a program with Loblaws, with Wal-Mart and with Sainsbury’s in the U.K. And he was able to change the whole paradigm of retailer brands. His growth was so rapid that he didn’t put in measurement systems. He decided to become the General Foods of private label. So he went into frozen food, pet food; he expanded into Israel and Norway, Australia, South Africa. He went into the beer business, the chip business. He took himself really wide without controls and took on a lot of debt. Unfortunately, he contracted brain cancer and he passed away. The guy was a genius, but the company had seven business units in North America; everybody had their own president, their own sales director, their own finance director; some of them did their own billing. And none of them talked to each other. We couldn’t get the products out right. I decided to blow the whole thing up. I put an organization in the U.S. and one in Canada. Then we put in common measurement systems, and I divested all the nonstrategic assets and took the company back to focus in on the core. I probably kept half the senior management. The other half I replaced with people who had worked in consumer product companies like Coca-Cola, Pepsi, Procter & Gamble and Campbell Soup.
Tell me about the RC International purchase.
About a year and a half ago, Cadbury Schweppes purchased Tri-Arc Beverages in New York. Tri-Arc consisted of RC Cola and Snapple. Cadbury had some antitrust issues because it sold its soft drink business in Europe to Coke, so they really didn’t want to keep RC International. We said, “Fine. We’ll take that.” Basically, outside of the U.S. and Mexico, we now have RC worldwide. The advantage it gives us is that we’ve got all these people who work in over 50 countries that are calling on bottlers about RC Cola. That gives us an infrastructure as we start to expand globally with our customers. Case in point: We just bought a factory in Mexico. Wal-Mart has become a large corporation down there -- a significant opportunity for us.
You came out of two companies with some of the most powerful brands. Then you went to two companies where you subsume your identity to a supplier’s. Was that a strange feeling?
Not really. If you dial back 25 years, private label was always perceived to be junk. In many cases it was. In today’s world retailer brands do have a place. Of all the skills that one uses to develop a brand, it always starts with quality and caring. I think we bring that same kind of caring to our customers. The difference is, it’s not your brand -- it’s their brand. In many ways that puts a greater burden on your shoulders.
