Beer king won’t settle for less than number one

By CHRIS GRAEME [email protected]

Addressing members of the British, French, German and Swiss chambers of commerce, the CEO of the company that produces Portugal’s market leader brands in beer, Sagres and Heineken, and water, Água do Luso, explains the secrets of the company’s success.

Today the Sagres and Luso brands are undeniably the market leaders in the Portuguese beer and mineral water markets.

Alberto da Ponte, CEO of the company behind them, Sociedade Central de Cervejas e Bebidas, explained how the company not only reorganised and rationalised its core business from top to bottom but also focused on an international expansion programme to both Angola and Cape Verde.

Talking about the ‘spirit of winning’, the former director of Cadbury’s Schweppes Portugal, where he worked for four years, said that Portugal and its companies had fallen victim to a certain “defeatism” and a “lack of perspective”. “There’s a fundamental word people have forgotten and that is to ‘win’,” he said.

“Understanding what ‘winning’ means for our company could be a good source of inspiration for many other companies,” he said.

Firstly a company has to define who its clients and target market are. Then it is vital to define competitors who are in the business for the same set of clients. Finally a company has to decide that it wants to be Number One, because “no one remembers who comes in second place”.

Financial performance was important not only in attracting shareholders but also for growth and these were important because they helped pay the 1,100 salaries “including my own”.

“Of course these facts aren’t news to anyone, but the question is, how do we do it at Central de Cervejas?”

There were many indicators that needed to be studied:  the Key Performance Indicators (KPIs), numbers that are followed periodically; Quota Market Indicators (QMIs), Sales Figures and Increased Sales Figures; Profit as a Percentage of Sales; Cash Flow; Return on Net Assets;  and other ‘soft’ indicators such as the Motivation of Human Resources’ and their development.  The effective harnessing of talent was a combination of the latter two.

Then there is the impact of the business on society and labour relations in other markets. This was a very important point since the company exported to various other countries and needed to understand the political regime and the situation in each one of these countries.

Giving two examples, the Hard Indicator and the Soft Indicator, he said that in 2003 the company had a ‘distance’ in the market of three points from its main competitor.

By 2009 the company had soared into a position of market leadership. With highs and lows it has succeeded in maintaining that leadership every since. It took the company 20 years to reach that position.

Alberto da Ponte was served by a brilliant team, but he managed to convince them that they could be Number One. “There was no reason why we had to settle for Number Two. Whenever speaking to politicians and government figures, and always with a sense of humility as a manager, I say we can aspire to being the fifth country in Europe with regards to foreign investment. Why not?

“But nothing could happen if human resources weren’t motivated. The results of our staff survey, which we carry out annually in various categories, were fairly favourable on the previous year. One thing I always have in my head is ‘What do I have to do be the best company in terms of staff motivation?”

Alberto de Ponte said sometimes he didn’t even sleep worrying about it, and that it was a duty he had to all his staff.

In 2007/8, the company had concluded that it was necessary to do more with less. Alberto de Ponte said that he frankly never believed that the crisis of 2008 would disappear by 2009. The Government at that time believed it would. “I’m really sorry that it did,” he said.

“We have to do more with less and we know this. With the help of the Euro Group companies, we arrived at the conclusion that growing implied freeing up resources,” he added, saying that it wasn’t about making those “usual cuts” but rather a “cost-reducing exercise in an intelligent manner”.

The answer was to cut costs in an integrated way, intelligently and adequately, in good time rather than making wholesale blind cuts when there was no other alternative.

In 2008, the company therefore launched a cost-cutting programme. The cost of raw materials and packaging had risen and the company dedicated three days to work out its cost-cutting strategy.

“It was a case of opening up the company completely to scrutiny and leaving no stone unturned. There was no room for sacred cows,” he said.

“If earning more or less depended on either having or not having a chauffeur then I’d do without the driver,” he admitted.

The process included internal integration and reorganisation; with continual improvement; an analysis of costs; the optimisation of key processes across the company transversally; and finally re-evaluating the value chain including the actual management model.

“This was not done by me, the board of directors, the executive commission, or the directors; this was done by groups where each had to participate and had a role to fulfil.

“We looked at the growth vectors, value, costs and the core business, the scope was across the board, and finally we looked at all the financial and operational costs and variables, and the impact of the re-organisation on the working capital and cash flow.

“I say working capital and cash flow because in 2009 we had a company that was highly leveraged, meaning the mother company Heineken. Our Number One priority was to find money in order to reduce our leveraging and reliance on the banks.

”We also understood that brands could be associated with what it is to be Portuguese and proud, which contributes towards financial and social health and helps galvanise a people which isn’t very united at the moment.”

Alberto da Ponte admitted that it had to increase its prices in response to the rising price of raw materials but that its internationalisation strategy, its change of publicity image and its intelligent rationalisation had created a positive and healthy company to meet the challenges of the future.