The changing drinks landscape has led Halewood Wine & Spirits in a new direction and precipitated a name change.
The phrase “we pivoted the business” was not often used before the pandemic, but for many in the drinks trade the decision to swiftly switch focus has been invaluable.
Halewood Wine & Spirits is one such business and its agility in navigating this turbulent period has even led to a change of name to Halewood Artisanal Spirits.
News of the name change came shortly after the announcement about the closure of its Huyton headquarters in Merseyside, triggered by the impact of the Covid-19 crisis and the abolition in April of duty dilution.
The move also signifies part of a longer-term shift away from its carbonated long drinks, such as Lambrini and Crabbie’s (both made at Huyton) towards premium spirits.
And its focus on spirits – specifically premium and flavoured – is clear from its NPD activity, even throughout lockdown, which includes the launch of Mango & Papaya gin and Watermelon & Lime vodka under its JJ Whitley range of flavoured spirits, and a flavoured tier for its Vestal vodka brand.
It’s clear, then, that some dramatic pivoting took place, but it’s not been an easy year for the company, as group chief executive officer Stewart Hainsworth explains.
He says: “When we had three weeks of panic buying at the start of the pandemic our normal sales levels dropped off dramatically and that had a major impact on our business, particularly on the cashflow.
“We then set about making changes to adapt to the new environment, like everyone else has had to do, but we were quick to do it, and thankfully so. And I think this was partly due to my emerging market experience, because I spent over 18 years abroad working in countries such as Russia where a crisis happened every other year, so you had to be flexible and make quick decisions and make the changes that were necessary to build the cashflow.”
ONLINE TAKES OFF
It was a challenging time, not least because Halewood juggles a number of products sold via a raft of channels globally. Sales through the duty-free channel dropped off completely and still haven’t picked up, he says, while online sales took off.
He says: “Our core business is the grocery channel and route-to-market impulse and after that initial period of shock for three or four weeks we started to see some good orders come through and some growth as people returned to the habit of going to the shop. All I can say is that if they hadn’t have done then we would have been in really big trouble.”
With all the channels and brands added together, sales are down for the overall business for July and August by 9% in total, he says, “but we are up 7% in net margin so that demonstrates the change in our mix very strongly, both channel mix and brand mix. The grocery and impulse channel are both up 23% on margin and combined together are basically flat on volumes. That’s for total brands”.
The company was already looking to move away from the RTD sector but the pandemic accelerated its plans, he says.
“The biggest change for us was the change in the duty dilution market. That took out the profitable opportunity in many of the RTDs we were selling, so brands we sold in impulse, such as Caribbean Twist and Lambrini Fruits, which were very big parts of our portfolio. Once the duty dilution came into play at the Budget it reduced the margin – it literally halved the margin actually. So our plan was always to move to artisanal spirits and that’s where £50 million of our investment has been over the past five years, either acquiring distilleries or acquiring brands within that main spirit space.
“We delisted Caribbean Twist and Lambrini Fruits, as well as VX, which was another product that sold very well in the impulse channel, and Mansion House.
“When you have cash flow difficulties you have to focus on where you are profitable and you take a much harder picture with them and stronger action against them.”
It’s not the end of the road for Lambrini though, he says.
“Lambrini got fundamentally walloped by the government on the fruit side but, somewhat ironically, we have had a lot of pressure to bring back Lambrini Fruit so we are about to do so. The abv will be 4% now instead of 5%, which helps mitigate some of the problems we had with duty dilution. So people can stop writing to me asking where it has gone. It’s coming back, leave me alone.
“In all seriousness, it is a very big brand and in the impulse channel it is our largest brand by volume, although Whitley Neill will catch it this year for sure. We will see how the brand develops over the next six months but it has its place in the market. It’s been around for 26 years and consumers like it.”
But its focus on spirits is clear.
In the past year Halewood has set-up a distillery in Russia, the only international company to do so.
Hainsworth says: “My belief is that the raw materials in Russia are far superior to some of the ones available in the rest of the world, the winter wheat particularly, and the quality of Russian vodka in general is very high and I want to bring that to the UK. Our ability to operate at a lower cost base out of Russia is clear, alongside great raw materials.
“We will probably move up the vodka brand ladder and we will introduce new brands, but we will do so carefully because, with the vodka market in the UK, the volume is very much still towards the tertiary end and mid-price, so there is limited premium vodka to be had.”
Elsewhere in the business Hainsworth says the company is very happy with its focus at the moment. It has flavoured vodkas coming out of Russia now for its JJ Whitley brand and new flavours for Whitley Neill and Dead Man’s Fingers rum.
He says: “Brands are changing, lifecycles are short so you do have to stay on top of it and spot the trends in flavours and we will try to keep doing that.
“We have been quite successful at spotting those flavours early on. The advantage of being smaller than some of our competitors is that we are able to launch brands quickly and get feedback both from our consumers and the trade on what they want and bring that into the NPD plan.
“Our consumers tell us they like colour and they want brands to stand out on shelf, and I think it’s really important for impulse, especially when the customer is standing one metre away and the product has to pop – as the Americans call it – from the shelf.”
Halewood has had to scale back on its international operations, he notes, but the company will continue to focus on core markets, specifically the big gin markets.
“But as a group chief executive I am very happy,” he says. “There is a lot of doom and gloom out there but there are also a lot of positives for the overall drinks trade and the off-trade should definitely be feeling optimistic.
“As a company we are extremely upbeat about the off-trade, including the smaller shops, and our experience to date has been extremely positive.”