Spirits group Diageo in talks to buy stake in Cobra beer
Diageo, the world’s biggest alcoholic drinks company and owner of Guinness and Johnnie Walker whisky, is in talks to acquire a 30 percent stake in Cobra Beer, the private Indian-themed lager company, for about GBP 25 million to GBP 30 million.
Cobra, which is controlled by Lord Karan Bilimoria, 46, an entrepreneur, has also held talks with other financial and strategic buyers, it was reported.
Cobra beer was developed 18 years ago in the UK by Lord Bilimoria for sale in Indian curry houses and has annual revenues of about GBP 43 million. It was founded on the hunch that Brits deserved a less gassy beer to drink with Indian food.
This year Lord Bilimoria hired a new CEO – Adrian McKeon formerly with Beam Global Spirits - and a new marketing director to push his beer – already a staple in supermarkets and Indian curry houses – into more mainstream pubs and restaurants. That has been Cobra’s biggest challenge to date: conquering the on-premise sector. This sector accounts for only 10 percent of Cobra’s sales.
Mr McKeon launched a GBP 40 million marketing campaign, including sponsoring the men’s television channel, Dave, to encourage people to think of Cobra as a beer that can be drunk at the pub rather than just in Indian restaurants which contribute about 40 percent of its sales.
Cobra produces a range of lagers, from super-strong to low calorie and alcohol-free, bottled and draught, but commissions others to brew the beer. Cobra is produced by Camerons brewery, Wells & Young’s and one further contract brewer in the north west of England. Cobra is also brewed under licence in Belgium at Palm Breweries. While Palm will have some responsibility for brewing Cobra 5% Premium Beer, their primary focus will be on brewing and bottling Cobra’s range of other beers – Cobra Zero %, Cobra Light, King Cobra and Cobra Bite. As of 31st July 2008 Cobra will no longer be brewed at Browar Belgia in Poland, which was acquired by SABMiller in August 2007.
Until last year Cobra was a virtual Indian beer only. Few consumers knew that Cobra did not have a brewery in India but was brewed under license in Europe. That’s when Lord Bilimoria decided to buy a controlling stake in Iceberg Industries, a brewery based in Bihar, India, to launch his beer in India in an effort to turn it into a “world beer”.
Lord Bilimoria, who still retains about 67 percent of Cobra, has been holding talks with potential investors because he wants to bring in fresh capital to expand the brand’s sales and distribution. He has forecast that, within two years, Cobra will sell more beer in India than in the UK as alcohol consumption becomes more common among the country’s growing middle class.
Diageo seems to be interested in acquiring a 30 percent stake in Cobra. If Diageo was to strike a deal with Cobra, it could push the brand through its global distribution networks alongside beer brands such as Guinness and Red Stripe.
Although Diageo’s heartland is in the U.S., the world’s most profitable spirits market, it has recently been expanding more aggressively into emerging markets in Africa and Asia, including India.
It recently paid GBP 457 million for a 50 percent stake in Dutch vodka brand Ketel after realising that it could not buy Sweden’s Absolut vodka without running into antitrust problems. Moreover, Diageo decided that Ketel was more premium than Absolut and that Absolut and its parent V&S did not warrant such a high price that Pernod Ricard was willing to pay.
