Business Times

Ukwatte – Why I moved out of business

Parting of the ways

Cargills which is rapidly expanding this week made an entry into the alcohol business, buying up the Three Coins brewery through a subsidiary, Millers Brewery. (More details are given in a "Enhancing capacity at the 3 Coins brewery").

In wide-ranging interviews, McCallum Brewery Chairman Chandana Ukwatte explains why he is parting with the product launched by his father in 1964 while Millers Brewery Chairman Stuart Young talks about the potential of the beer market in the post-war period.

Comments from Mr Ukwatte:

Q: Why did you sell the business?

The effort and time needed to make the business a real success did not seem worthwhile to me. I would have been happier to have had the opportunity to monetize the company as a great success. But that opportunity eluded me.

McCallum Brewery Chairman Chandana Ukwatte

The decision was largely mine as I held over 95% of the stock. The timing of it was fortunate only in the sense that the immediate aftermath of the war has proved to be heady days for men of action. Otherwise I feel I have spent too many of my days pursuing external advantages of wealth and distinction, and without success at that.

Q:Why did you give up on making it a success?

There comes a time when you have to acknowledge your own limitations in exciting admiration, whether in the life of practice or the life of reason. Anyway ambition must be limited, I feel, by considerations of the opportunity to cherish liberty which external advantages serve.

Q: Did the regulatory environment for liquor play a part in the decision?

Over-regulation never encourages healthy competition, while stimulating monopolistic practices. But no one prevented us from becoming monopolistic ourselves. In that sense my own failure in business cannot be attributed to the regulatory environment. Others have succeeded in that environment.

Q:Was Cargills the only party making a play for the business?

There were others. Of these at least two parties were presumed by me to be serious contenders, and their offers were superior to the Cargills’ offer. They turned out to be only interested in preventing Cargills from entering the beer industry. I do not mean to suggest that these parties were dishonourable. On the contrary, I doubt one can succeed in business as much as they have without being honourable, although I am told there is honour even among thieves.

To be fair, I must say this. One of the parties was a leading family driven conglomerate, and the two leading members of the family personally assured me of the seriousness of its bid, but at the same time made me understand that Cargills was the driving force of their interest in Three Coins. I suppose it was a kind of a caveat, and the party withdrew its bid no sooner they felt that Cargills was no longer in the running. The mistake the party made, if it was at all a mistake for them, was in underestimating my capacity to go back to Cargills with the metaphorical tail between the legs. Cargills in turn showed none of the mean spiritedness that is usually attributed to commercial people placed in commanding situations. Ranjit Page (Cargills Deputy Chairman) decided to stick to the bargain we had arrived at before the rupture.

Q:There were reports that Lion Brewery and Asia Pacific Brewery were vying for the control of Three Coins?

I can neither deny nor confirm these reports.

Q: As a beer man, how do you see Cargills prospects in the industry?

Excellent, I feel. Cargills has a growing distribution network, and needless to say distribution is the mainstay of business success. Also Cargills’ ways of doing things have evolved into an ethos that bodes well for the beer industry. What I mean by that is simply this: I sense in their ethos a recognition that one cannot do things “on the cheap,” and that profiting from commodification cannot be entirely at the expense of quality, variety, taste, style and novelty. Without a genuine interest in bettering consumer experience, the natural disposition of businesses to engage in monopolistic practices and to underestimate the consumer’s intelligence becomes matured by habit. I won’t be surprised to see Cargills creaming to the top in the beer industry sooner rather than later.

Q:The business was founded by your father, U. K. Edmund?

Yes, indeed.

Q:Was the sale an emotionally, difficult experience?

The selling of a family owned property is an emotionally, difficult experience for most people. But a confluence of interests and pressing circumstances created a logic that had a greater hold on my heart than the emotional attachment to family property.

Q: Plans for the future?

I do not want to bore your readers with my own plans. It is enough to say that I have no business plans whatsoever.

Soft liquor outpacing traditional arrack - Young

In an interview with the Business Times Stuart Young, Chairman, Millers Brewery Ltd responded to the following questions:

Q: What was the reason for the Cargills group to venture into the soft alcohol business?

This segment of the market offers good long term growth potential as soft liquor is relatively undeveloped in Sri Lanka compared to markets in other countries.

Despite the fact that there are restrictions placed on the marketing of alcoholic beverages the younger generation is well aware of international trends which show a 'fashionable' move to wines and beers. We are already seeing beer and LMFLs (Locally Manufactured Foreign Liquors like Vodka, Gin, Rum, etc) outpacing traditional arrack in the market. Furthermore with the island now at peace tourism is destined to boom and we will be producing beers that will cater for the needs of foreign tourists. There will be the inevitable rub-off into the local market.

Stuart Young, Chairman, Millers Brewery Ltd

Q:Given that the 3 Coins product has been virtually dead for many months – out of the market and out of the mind (consumer) plus given the strict regime relating to advertising and promotion, how does Millers plan to get it back to the top-of-the mind of the consumer?

We are certain that there is sufficient goodwill towards the brand that will allow us to achieve similar volumes of these products relatively quickly.

Also the trade will welcome our return as competition will help grow the market. As for marketing, as you know, we can only use the packaging for communication and here we believe that we can be quite innovative in design not only for existing products but also for new introductions.

Q: What kind of spending is planning in the ‘re-engagement of consumer’ campaign?

There is no specific spending plan as the prevailing laws governing the sale of alcoholic beverages prohibit advertising and promotional activity. However our sales force will be introducing the product to the trade and effective display will bring the re-introduction of our brands to the notice of consumers.

Q: Is there additional investment that is required to upgrade or revitalize the plant?

The plant is non-functional at present but minimal investment is required to bring it into full production based on current installed capacity. We will additionally embark on a significant capacity enhancement programme over the next 18 months to be able to produce the volumes that are required to meet the needs of our strategic objectives in the marketplace. Certainly it is our intention to expand the market via innovative new products catering for both the local and tourist segments.

On competition

I am great believer that competition is good for business and is a driver of growth. I know the major player in our industry believe this equally and in competing we will hone our skills. They have set a high bench-mark against which we will strive. Together we will expand the market to the benefit of the consumer and indeed the country. Whilst respecting them I am certain that we will gain a growing share in an expanding market. This will greatly benefit the consumer offering a wider choice of high quality products.

Q:Having spent many years here earlier as the Nestle Managing Director of the local unit, are you happy to be back in the saddle in a different beverage business and also back in Sri Lanka?
I have spent nearly eight years in Sri Lanka which outside of my own country South Africa is the longest I have spent anywhere. I believe I know the country and the business environment well and have a great affection for this island and its people. In fact, I have more friends here than I have in my own country. I believe that in this and my other capacities here I can make a modest contribution to the great future that surely awaits Sri Lanka. The potential of this island, now that the war is over is staggering. At my last meeting with the President in my capacity as MD of Nestle he said to me with regard to the war that he would "finish it off" and true to his word he did some six months later. Now, thanks to that determination, the nation is set to take its place amongst the fast growing economies of Asia. Great things are about to happen!!

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