23/09/10

By Modwenna Rees-Mogg, Founder and CEO of AngelNews

Britain has always been a nation of beer drinkers which perhaps explains why we have a particular fondness for entrepreneur, Karan Bilimoria, and the iconic brand he created in the form of Cobra Beer. In a country that historically did not want to forgive business owners who failed, it is perhaps fitting therefore that Lord Bilimoria and Cobra Beer are showing us the way forward following the latter’s pre-pack administration in 2009.

From recession to recession

When you read about Karan Bilimoria’s early life — son of the General Officer Commanding-in-Chief of the Central Indian Army, Cambridge law graduate, Ernst & Young accountant - you would never have thought that he would want to start a business, especially a beer brand. The story is all the more inspiring for today’s entrepreneurs because he started it, with co-founder Ajun Reddy, in the teeth of the early 1990s recession with £20,000 student debts hanging round his neck.

Google Cobra and you will find numerous stories of how Bilimoria got going — attacking a market that was the preserve of the global beer corporates, 15 cases at a time and selling to the UK’s curry houses out of a 2CV. Cobra was brewed in Bangalore by Mysore Breweries and imported into the UK until 1997, both bucking the rule that you need to stay local when a business is young and proving another — that using India as a source of supply is not solely the preserve of the IT industry.

A mixture of angel and VC funding gave the company the cash it needed to grow. It was a time of rocketing sales, great parties and everything going right.

In 1997, brewing commenced in the UK under licence to Charles Wells, now Wells & Youngs, which has a strong reputation for brewing international beer brands, including Kirin and Red Stripe. Turnover rocketed from £24.4m in 2006 to £45m in 2007. A new CEO Adrian McKeown former UK MD of Beam Global Spirits & Wine was appointed. Cobra was being exported to 50 countries and was available in over 6,000 pubs and bars in the UK. But losses rocketed too, to £13.6m in the same year. And with debts of £26m with interest accruing at 15% compound, the writing was on the wall.

As the 2008 recession hit, Cobra was still growing its headline figures — volumes grew by 21% between August 2008 and end of January 2009. But trouble was definitely brewing — McKeown stood down with 3 other directors and staff numbers were cut by 2/3rds — from 150 to 50. It was not enough.

A new form of packaging for Cobra!

The importance of a flexible business environment for troubled companies is symbolized by the Cobra story. In November 2008, Bilimoria and his team realized that the business was in trouble and tried to sell it to one of the big brewers. When a sale did not emerge, they tried to form a company voluntary arrangement, which was vetoed at the last minute by Wells & Young’s which, apparently was advised by its credit insurer not to accept the deal, although it has declined to comment. A pre-pack was the only other option. In a joint venture with Molson Coors Bilimoria struck a deal where the secured creditors, largely banks, were paid back the £20m they were owed. Molson Coors paid £14.1m for the 50.1% stake it acquired.

Lessons to be learned

The obvious lesson is that Cobra fell victim to the vanity of turnover growth rather than the sanity of focusing on the bottom line. Perhaps it was a business pushed too far by its investors and, one wonders, whether it was another example of the dangers venture capitalists and hedge funds face, when putting a new CEO into a business which is so strongly linked to its founder? The perils of loading a fast growing business with debt capital are also epitomized by this story. To some it will be striking that Karan Bilimoria’s own rise in fame outside his business — not least his ennoblement to the House of Lords and his chancellorship of Thames Valley University — and the ensuing inevitable distraction, might have been one of the reasons why things went so wrong so quickly. Although it was the speed and depth of the banking crisis that did for the original Cobra, I suspect the writing was on the wall for the business for more reasons than the Credit Crunch.

But perhaps the best lesson of all is that true entrepreneurs, like Bilimoria, don’t disappear when the going gets tough. After all it was Bilimoria who did the deal that saved the business and I for one believe his pledge that Cobra will return the money it owes its unsecured creditors.

The future is curry — and Cobra

Cobra is now a refocused business; lower turnover, repriced, but more profitable and ironically brewing in Burton upon Trent “the home of India Pale Ale!” The business is growing again with a focus on boosting volumes in its core market — UK curry houses - alongside plans to expand into pubs. There is a new advertising campaign — Love Curry, Love Cobra as the business celebrates a triple birthday, 20 years of Cobra, 200 years since curry came to Britain and the 50th anniversary of the Bangladeshi Restaurant Association.

Bilimoria is back at the helm and clearly relishing the challenges the next phase of his business will bring.

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