This week your Penny Sleuth has been visiting the European City of Culture, Liverpool.
My short walk from the station took me past the most wonderful second hand junk shop, a drunken old lady swaying from side to side and holding tight to her bottle of cider, and Liverpool Cathedral barely visible behind some hideous student housing.
There was no shortage of cranes on the horizon, but still I would say that Liverpool’s regeneration has some way to go.
Ten minutes later I arrived at Stanhope Street and the vast and imposing sight of the Robert Cain Brewery. This red brick monster is known locally as the Terracotta Palace and dates back to 1850 when Irish immigrant Robert Cain reckoned that selling beer in a thriving seaport would be a likely way to make money. Since then the brewery has changed hands a few times, and is now owned by the AIM-listed Cains Beer Company, controlled by the Dusanj brothers who have progressed from running fish and chip shops in the Medway, via Midlands-based soft drinks manufacturer Gardner Shaw, to a public company that now owns not only the brewery but also one hundred and six pubs in the North West.
The latter came about last May when the brothers reversed Cains into the struggling pub company Honeycombe Leisure. The deal saddled the new business with a debt burden of some £30m, including a £2.5m convertible loan stock that could increase the number of issued shares by about one third.
With this level of debt supported by shareholders’ funds of £7.4m and a business that made an operating loss last year the shares represent a high risk investment, and the Dusanj’s efforts to revitalise it have not been helped by last year’s smoking ban, a 25% rise in the price of malt and hops, and now the downturn in consumer spending.
The love of beer
All the same they have a clear strategy, they have introduced a number of initiatives and, as was evident when Sudarghara Dusanj gave me a tour of the brewery, they certainly have enthusiasm.
‘I just love beer’, he told me – not that there was any sign of overindulgence - as we stood overlooking the canning line where sixteen hundred cans per minute were being filled with the nation’s favourite drink.
Cains has contracts to can beer for other brewers, such as Greene King and Fullers. The beer arrives in lorries some from as far away as Kent, the cans come from Northampton and Cains does the rest. It also cans own label beer that it makes on behalf of big supermarkets including Asda, Sainsbury and Tesco and here it has won new business from Marks & Spencer and Waitrose.
Canning and contract brewing are both low margin businesses, but thanks to its successful efforts to win new customers Cains has greater buying power with the can manufacturers and is running the brewery round the clock for five days of the week, compared to one shift, three days per week, when it was acquired.
These contracts provide cash flow, allowing Cains to develop and promote its own range of beers and to regenerate the pub estate acquired from Honeycombe.
Cains is certainly innovative. It has won a number of prizes for its beers and models itself upon the successful US ‘craft brewers’ Samuel Adams, Sierra Nevada and Anchor Brewing. Amongst its latest creations are a raisin beer – ‘rich amber ale infused with succulent Californian raisins’ – which last year won the ‘best fruit beer’ category in the Annual World Beer Awards; and its Finest Lager, the label for which was designed by artist Sir Peter Blake to celebrate Liverpool’s year as Capital of Culture.
Sudarghara Dusanj was particularly excited about the prospects for this lager, seeing no reason why the foreign domination of this sector should not be challenged by a British version made, he told me, from the finest Maris Otter malt from Norfolk - a relative of the Maris Piper potato.
Cains is pushing its own range as hard as it can into local pubs, clubs and retailers, and recently announced that Morrisons will stock its lager throughout its entire chain of 342 stores. Cains also has a number of exclusive contracts to lubricate the various events taking place in Liverpool this year, such as this month’s Mathew Street Music Festival where attendance is expected to reach 750,000 people.
But a key part of its strategy is to sell its own beers through the pub chain acquired from Honeycombe. Cains is pursuing the business model of vertical integration, controlling the pub estate from the centre, employing salaried pub managers, and imposing its own beers. A precondition of this is investment in the pub estate itself and early results from refurbishment, which costs £50,000-£100,000 per pub, have been ‘extremely good.’
So now Cains is the biggest independent can packer in the UK; it has a range of beers and lagers with a growing reputation and a pub estate that has plenty of scope of improvement.
Times though are ‘challenging’, as Sudarghara Dusanj admitted and as last month’s interim results starkly revealed. With so much debt on the balance sheet investors are understandably nervous. At just 4p the share price is as flat as warm beer. But still, for the moment, I would rather spend my money on Cains’ beer than on its shares.
Regards,
Tom Bulford
for The Penny Sleuth
