Drinks talk with Campari CEO Enzo Visone
Should he wish to relax, he can take a stroll outside Milan headquarters. There he can choose from any number of glamorous coffee shops and restaurants in the famous La Galleria Vittorio Emanuele II. And if ever he feels the need for inspiration, he could always visit the opera at nearby La Scala or say a prayer in the cathedral.
After all, Enzo Visone has a hard act to follow. He succeeds statesman-like Marco Perelli-Cippo who enjoyed the confidence of the Garavoglia owner-family.
Visone intends to pursue the acquisitions trail mapped out by his illustrious predecessor. But will he also be able to grow the spirits group in a disciplined way that will continue to create value for shareholders?
"We want to play
in the premier league"
Signor Visone, given your recent results, it is surprising not to find you with a celebratory drink in your hand. What then was the sober reason for the nearly 40 per cent hike in your share price over the last year?
We are a relatively young stock and only IPO-ed in July 2001. Since then we have gained credibility regarding our capacity to grow and deliver consistently good results. At the end of 2005, a year in which our sector was generally fairly buoyant due to M&A activity, we also announced two new distribution deals, a small wine acquisition and a major purchase in the whisky sector.
Food retailing in Western Europe has suffered from lacklustre consumer expenditure for more than a decade. Why hasn’t this affected Campari?
Obviously, we are also affected by general consumer trends, but less so than others because of our brand equity. Also we compete in categories which are less competitive than others. Unlike many other categories, Campari is a unique brand so a consumer can’t trade down to a cheaper alternative.
For a long-time you were regarded as a profitable and cheap takeover target. What are you today, hunter or prey?
We may have been a target, but I’m not sure we’ve ever been considered cheap! In any event we were, are and will be a hunter. Neither management nor the controlling shareholders have any intention of exiting the business, and we plan to continue growing and to make acquisitions.
This strategic decision was taken ten years ago when we were still a one-brand, one-product company. At the time, we didn’t know whether we had the managerial and financial capacity. Had we not done so, we should eventually have died or been sold.
Since then, our success has confirmed our ability to grow and become a major international player as well as to enable us to look even more confidently towards the future.
Since 1995 you have invested over €1bn in acquisitions, but, you still remain only a tenth as big as Diageo and Pernod Ricard. Are you worried about the distance to the Big Boys?
It is true that the gap between the first two and all the other players is very large. However, the world is also a big place, and there is still a lot of room for others. Our objective is not necessarily to become the number one, two or three.Obviously, we want to be a major player in the premier league of the spirits business.
However, profitability is more important than size, and overall I think we are as profitable as many other companies.
Bearing in mind how expensive global spirits brands have become, do you have enough firepower, even with an estimated war chest of €400-€500m?
The fact that our war chest is relatively small merely influences the time it will take to become a certain size. We are also in a business which generates cash very quickly.
To what extent has the purchase of the whisky brands from Pernod Ricard reduced the size of your war chest?
Not by that much because we could afford more than the sum you mentioned if the potential target had the necessary quality. The company today still does not have a high gearing, which has averaged 50 per cent. We therefore have considerable scope to act even before we explore such routes as increasing share capital.
Ideally your offer would also include rum and brandy?
The answer is yes, but rum and brandy are different. Brandy is basically a declining category world-wide whereas rum is growing slightly. It’s not so much a question of aiming at certain categories, but rather one of opportunity.
Unfortunately, acquisitions are not like going to the supermarket where you can pick what you want off the shelf. You have to take advantage of the opportunities as and when they present themselves.
Expansion in the USA has top priority for you, but the American palate finds Campari somewhat bitter.
Compared to our major competitors the percentage of our turnover generated in the US is far lower. Also the US is the number one spirits market in the world. So we are interested in gaining greater weight in this market.
The fact that the US consumer may find Campari somewhat bitter to date does not mean that he or she will not do so in future. Like most spirits, it is an acquired taste. The success of Jägermeister in the US is an example of another bitter which has been adopted by the Americans. The US consumer is continually growing in sophistication.
In the end, most consumers drink spirit brands for reasons of image, which is why I don’t believe that the success of Campari in the US is impossible. It’s just a question of time and intelligent marketing.
In view of the increasingly centralised buying activities among international retailers would you be prepared to offer them a net-net price for Campari throughout the Euro zone?
We have to distinguish between what we would be willing to do and what we can do legally. In the European Union it is not legal to fix prices. We are in a different situation to most other multinational suppliers in that we do not have our own distribution companies in most of the European Union.
We are only directly represented in Italy and Germany. In all other European markets we go through third-party distributors who are independent, and we have no legal right to determine their pricing.
In what direction do you feel that the balance of power is shifting between retailers and suppliers?
Over the past 20 years, it is obvious that the power of the supermarket chains has become increasingly important world-wide. However, in the long-term both retailers and suppliers need each other.
Years ago, the focus of the supermarket chains was on price, but today they are becoming a lot more sophisticated and marketing-oriented. They are beginning to realise that business is not always about price and that margins can be created in many ways.
German hard discounters have the highest market share in Europe. Does this worry you?
With a 40 per cent market share the presence of the discounters in Germany is a reality. We are not against discounters. If they are open to international brands, we are more than willing to work with them.
In Germany you are listed with Lidl. Given the way German discounters have consistently destroyed the value-added of major brands, isn’t this a devil’s bargain, i.e., sacrificing margin for volume?
I think you are overestimating the danger today. That was more a characteristic of the past when discounters were striving to become a reality on the German market.
But now that they have cut out their share of the German market, they have begun to act differently. They are trying to respond to customer requirements and as a result are more open to a marketing approach.
Why do you think that retailers have consistently failed in their attempts to create a Campari-like own brand?
Due to our brand equity. You must not forget that as a group we invest serious amounts of money every year to maintain and build our brand equity. Also, many people have also tried to copy Coca-Cola, but there is only one real competitor to date, even though there are millions of local or own-branded colas.
Why do you think there is no such thing as a global spirits brand?
The main reason is because the consumption of alcoholic drinks throughout the world goes back hundreds of years. As a result you have a local drinking culture which differs in terms of how, what and when one drinks. Thus, it will always be much harder to build a real global brand in the spirits industry.
In terms of worldwide distribution, there are very few countries where we are not present trading as we do in more than 190 countries. However, physical distribution and presence is one thing, to be the main spirit consumed in that country is another.
Even in Europe, brands, products and drinking habits vary considerably. This can even be seen between Italy and Germany, which in global terms are right next door to each other. Strong local brands are a part of the culture and the richness of this industry, and I see this as an advantage rather than a disadvantage.
Where do you see the real growth areas in the spirits business?
Firstly, there will be growth in regions such as Asia where international brands are relatively weak. Growth will also come through further acquisition of brands because the consolidation process within our industry still has a long, long way to go.
Thirdly, innovation will create growth because our industry has been rather old-fashioned and conservative. As the industry was based on historical brands in the past there never used to be a lot of innovation compared to other fmcg companies.
In recent years, however, this has begun to change. The amount of money which major spirits groups spend today on innovation has greatly increased. More importantly development is becoming part of the mindset in the spirits industry.
Presumably you are referring to RTDs?
RTDs are an example of product innovation which came five or six years ago. But they were a bit of a fad because after a huge explosion they have been declining almost as fast as they grew. I think in future we will have both fads and new brands which will become classics over time.
What type of a manager are you?
It would be better if my colleagues answered; I may see myself in a certain way, but be perceived by others differently.
But that’s everybody’s fate!
I am very fortunate in having a fairly young management team. Although we are becoming a big company, I also believe in having few, but good people. It’s not about quantity, but quality.
I believe in keeping things streamlined at the top with very flat structures. I don’t believe in hierarchies because they tend to be slow and impede both innovation and operations. In today’s world speed is fundamental to success. Also top management in general should not lose contact with the reality of the market.