Blithe spirits - alcoholic beverage company Guinness PLC - Cover Story

Chief Executive, The,  April, 1992  by J. P. Donlon

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Bucking declining North American demand for spirits, Guiness ranks as the world's most profitable alcholic drinks company. Having retaken control of its distribution networks, the company is pushing pricey, upscale brands in the hope of repositioning scotch as status. Interested in a $500 bottle?

As many schoolboys know, the mighty German battleship Bismarck was undone not by a sudden Midway-like cataclysm, but by a lucky torpedo that fouled the warship's rudder steering mechanism. Five years ago, Guiness Plc, the U.K.-based brewer and alcholic drinks company, found itself--like the legendary warship--sailing in circles with guns unscathed but not of much practical effect. Per capita spirits consumption had been declining for almost 10 years from very high levels in the U.S., one of the prime international markets. During the 1970s, the real, stateside price of major scotch brands almost halved. (This on top of unabating anti-alcohol social pressure, which continues today.) Too, other traditional markets such as the U.K., Canada, and Australia were maturing with growth difficult to achieve.

Another handicap in common with that unfortunate pride of the Kriegsmarine was a commander in dire need of a reality check. In a [Pounds] 2.7 billion ($4.6 billion) hostile takeover bid in 1986 for Distillers --a U.K. spirits company also sought by Argyll, a food retailing group--then Guiness chairman Ernest Saunders engaged in an illegal [Pounds] 400 million share support scheme. (Britain's Serious Fraud Office was tipped off by U.S. authorities when Wall Street arbitrageur Ivan Boesky "sang" in the fall of 1986.)

Until eclipsed by the Blue Arrow scan, the Guiness name had been associated with the biggest U.K. financial scandal to rock London. It cost taxpayers at least [Pounds] 15 million to investigate and try. Possible civil action forced the company into a [Pounds] 70 million settlement. Criminal charges against direcctors prompted the Bank of England and the City to bring in four "pure and true" outside directors, one of whom was Anthony Greener. (Meanwhile, Saunders' five-year prison sentence, judged severe at the time, was commuted in light of his claim to be suffering senile dementia. But since his release, the former CEO has proved a lively and oddly coherent chat show guest, causing one Guiness executive who knew him to remark acidly that Saunders' was the only case of senile dementia to reverse itself.)

During this time, company morale was just below sea level. Ultimately replacing the disgraced Saunders was Anthony Tennant, who had boosted the fortunes of Grand Metropolitan's spirits division. His course was simple but effective. For starters, Tennant decided to focus on Guiness' two core businesses: spirits and brewing. He took control of distribution and persuaded consumers to trade-up, or to pruchase higher-quality, higher-value products. But perhaps most important, he moved to redeploy brands (e.g., move I.W. Harper bourbon out of U.S. and into Japan where it commands a high premium); reposition brands (e.g., moving Johnnie Walker further up the prestige scale), and t tailor the company's marketing approaches (e.g., status-minded Taiwanese can be expected to drop $500 on a single bottle of scotch in upmarket nightclubs).

But upon reflection, Tennant wasn't happy with the executive in the spirits division (Brian Baldock led the brewing operation) and persuaded Anthony (Tony) Greener to leave Dunhill Holdings to run Guiness' United Distillers. (The unit's turnover and profits now dominate the company.) Last December, Greener succeeded Tennant as chief executive; he will assume thee chairmanship after Tennant retires at yea's end.

Greener, 52, is known as a tough, single-minded manager who doesn't suffer fools gladly. Before Dunhill, he held executive marketing positions with Unilever. In 1989, he also became a director of LVMH Moet Hennessy Louis Vuitton, the French maker of luxury goods, champagne, and cognac. Guiness and LVMH own a 24 percent stake in one another.

Greener takes control at a momentous transition in Guiness' affairs. For the first time in years, the waters are quiet; Although one defendant has yet to be tried, the scandal is effectively over. Also, in May, the Earl of Iveagh, the last Guiness connected to Guiness, leaves the board. (Arther Guiness founded the brewery in Dublin in1759; shares were first floated in London in 1886.) When Greener disclosed the departure at a meeting with analysts, one tradition-minded observer questioned how the company could not have a Guiness link. "Do you expect us to have a Johnnie Walker or a Gordon's on our board too?" Greener quipped.

In a tough, consolidating market, the $7 billion company has become the most profitable alcholic drinks company in the world, having overtaken Anheuser-Busch in 1990. London analysts are predicting 1991 pretax profits of [Pounds] 945 million, compared with the last year's [Pounds] 847 million. Among beverages firms, it is second only to Coca-Cola. In market capitalization, it ranks ninth in the U.K. and 15th in the EC. Since 1987, Guiness' CAGR in pretax profits has been 28 percent and EPS growth 26 percent.