Keeping it in the family works for John Nichols. Michael Taylor meets the man in charge of one of the region’s top drinks brands, who said no to private equity, opting to weather the storm instead of taking an easy exit.
John Nichols is relieved. The company he runs is 100 years old and still very much a family concern. He works two days a week, which he says is quite enough, but he’s also happy that the business, which makes Vimto – one of the North West’s top brands – didn’t sell out to a private equity or a trade buyer last year.
In an industry dominated by the two US giants Coca-Cola and Pepsi there always seems to be background chatter about the consolidation of rivals. Nichols was under an offer period for most of 2007. But as a fierce custodian of the brand, the family name and the children’s inheritance, it’s a period Nichols looks back on like the man who didn’t make the biggest mistake of his life.
“Our view was always never say never, but the prices being talked about were stupid,” he says. “In some ways we missed the boat, but we’re custodians of the brand and it would have been a mistake to have sold to private equity last year.”
He admits, too, that his advisers, Rothchilds, also kept a back channel open to AG Barr – the Scottish makers of Irn Bru – another strong independent in the soft drinks market. To the city scribblers it looked like a good fit: two popular brands to challenge the majors, family owned and wide open to a bit of entrepreneurial spark to light them up. But the characteristics that make them so alike also make them unmergable. They are precious assets for family dynasties.
While Nichols is still the chairman of his family concern, so too is William Barr, the chairman of privately owned AG Barr. And while Nichols is 35 per cent owned by the family, descendants of the founder John Noel Nichols who invented “Vimtonic” in Manchester a century ago, there’s more to be done with the company.
As a profit-making steady business with a long track record, it stands out on the AIM list, though the share price is building back after a slump to 227p in December 2007 from a high in March that year of 300p.
“I’d like to see the share price go over £3, but it doesn’t really matter,” says Nichols. “We have a number of investors who have funds placed in AIM companies who are happy with us. We pay a dividend, we have a good balance sheet, we make good profits and we’re in the top 100. But we still have to perform as a business.”
The business is in decent shape to withstand a squeeze on household budgets. Profits were up 15 per cent to £3.2m, while top-line sales were up 5 per cent to £29.2m. Keeping that margin will be the key this year, he says. “The economic uncertainty is obviously set to continue but we remain optimistic, but cautious, that we are doing the right things in a tough market.”
The City’s reaction to the results has been: ‘Yes, but what’s next.’ He says that’s understandable. “We’re not a business that can produce 20 per cent growth a year, but we can maintain double- digit growth.”
But Nichols has seen slumps before and knows how to react. “I do think we’ve talked ourselves into this depression,” he says, reflecting on the City press’s obsession with his company’s growth.
On the whole, though, he’s pleased with the results, if not the coverage. “I was asked how we’ve moved margin up so much compared with last year,” he says. “We did a lot of promotion and marketing last year, which didn’t have a massive effect on the volume of sales. Our drinks products are seasonal – you have to taste it, and we have to get it into people’s hands. It can be difficult to find in London. You can get it in Tesco in the South East, but it’s nothing like as prominent in these stores as it is in the north.
“The UK continues to be difficult. Products we have are part of the weekly shop, but a bottle of cordial for the family still means it’s not an essential, but it’s not a luxury either. I think the initial shock has probably gone, but it won’t be a disaster,” he adds.
But Nichols has been transformed as a business. All production is outsourced to specialist manufacturers. The company, as it is now, is a sales and marketing operation that owns the intellectual property on a popular fruity recipe and a 100-year-old brand.
It could well be a business school module on globalisation and economic trends. Internationally the product has managed to reach the parts many of the other soft drinks brands can only dream of reaching.
Vimto is a popular product during the Muslim holy month of Ramadan. People buy the fruity cordial by the caseload in Saudi Arabia, in particular, basing the evening feasts – following a daytime fast – around dates and cups of Vimto. But the sales are concentrated in a brief period. He likens it to sales of Christmas puddings in December in the UK – a seasonal product accounting for 80 per cent of sales.
“It’s been around since the 1920s in Arabia, we’ve always had a presence there. When oil became a big thing and the country became much wealthier, and incomes rose, it was a product that was always there and we benefited,” he says. “Apparently it goes very well with dates and provides a sweet tonic during the evening feasts to help the body prepare for the next day.”
Another big international market is Africa. “It’s hard to do business in some countries there,” he says. “They are still terribly corrupt. But we’re in Senegal, Sierra Leone and Equitorial Guinea.”
But there is more than just selling Vimto worldwide. Nichols also owns Cabana, which dispenses soft drinks from the bar at pubs, clubs and leisure facilities. The dispensing business is third behind Pepsi and Coca-Cola, but has 5,000 outlets in the UK. Nichols supplies the syrup and the juice to customers.
Nichols says he’s confident about Cabana’s prospects after some restructuring and changes to distribution. An acquisition in Scotland helped get the size right. But purchases of cool fizzy drinks have been hit by the dreadful weather this year and last. Golfers, for instance, aren’t as likely to buy a pint of lemonade when they come in off a rainy course.
He’s also been keeping a close eye on how the smoking is affecting the pub industry, and football has definitely been hit with pubs closing at an unprecedented rate. “The ones that are doing well interest me,” he says. “They tend to serve food, are more family friendly and, therefore, have greater demand for soft drinks.
“We don’t have a water product, which we’re pleased about. No one makes any money in it,” he adds. “Water is harder to bottle, harder to handle and it’s expensive to get quality water into a bottle. There is a plethora of water brands and they’ve all been hit by environmental bad publicity.”
He is more interested in the energy drinks market. Red Bull, the Austrian fizzy caffeine drink, has been a runaway success and it is a story Nichols looks at with interest, especially when he plans new versions of the famous purple drink.
“We ask whether we can stretch Vimto. We’ve moved to confectionery, and we’re trying out products in markets such as China, Japan and the US,” he says.
You don’t build a company with a 100-year history by making tactical mistakes. And it’s typical of John Nichols’ style that he’s looking at the next stage – China – with cautious optimism. “We don’t take huge risks as a company. We’re forming a joint venture in China as it’s so important to find the right partner,” he adds.
It’s a method of working that has served his family well for 100 years, and with his two sons working their way through the company he knows the way ahead is clear for the next century.