The Shoeshine Column: Waves and raves - do you believe in V?

Friday 2nd March 2001

So place your bets on Frucor. Do you believe in V?

For those who haven't tried it, Frucor's "V" new-age beverage tastes like sparkling apple juice with a generous dose of toothpaste stirred in.

It's not the sort of drink you'd sit around and savour while watching Sex in the City but on a hot afternoon it's really quite refreshing, hence its billing as "your afternoon wake-up call."

Here in Godzone, and across the ditch in Australia, it's selling by the truckload which helps explain why the company, a private capital consortium bought from the old Apple and Pear Marketing Board for $50 million in 1998, now has a market capitalisation of around $235 million.

To be fair, it was the Apple and Pear crew which came up with V, which was launched on the local market in August 1997.

But the business didn't really take off until Frucor's present management took over.

Its performance so far has been first-rate even if there has been the odd hitch.

The story has been an increasing channelling of capital, management and marketing resources away from the static, commodity juice category toward the high-margin, value-added areas - new-age beverages, made up mostly so far by V, and "other beverages" such as H2Go and Mizone.

In tandem with these operational measures, management has been pursuing growth aggressively, first into Australia and, from May last year, into the UK. And that's where the story gets interesting.

The business case for Australia is pretty obvious. The markets have similar characteristics in terms of climate, tastes and lifestyles. But Australian per capita consumption of new-age beverages is only 0.8 litres against a New Zealand figure of nearly three. Both are growing at double-digit rates, according to Frucor.

In the beverage business, companies need to maintain the optimal balance between penetration, or the percentage of all possible outlets that stock their brand, and marketing expenditure.

Plainly there's no point spending $1 million on marketing in New Zealand, say, if only 10 Auckland dairies stock your product. Conversely you could have 100% penetration but other products would quickly take over valuable shelf space if you aren't spending enough on marketing to give retailers some decent turnover.

The Australian assault is going well. Frucor isn't saying but analysts believe penetration has reached around 50%.

That can only improve with the fortuitous acquisition last year of the Spring Valley distribution network.

That came about in December when Cadbury Schweppes bought Spring Valley's juice and dairy beverage brands from Bonlac Foods. Cadbury had its own distribution and didn't want Spring Valley's. That left Bonlac with 60 redundant staff.

Frucor stepped in, paying the bargain basement price of just under $2 million.

For the current financial year this has had the unfortunate but one-off side- effect of reducing forecast earnings by $2.5 million to $17.5 million. That's because Frucor had to buy back some of the inventory it had already sold to Spring Valley. The effect is it will be selling for 46 weeks but paying marketing costs for 52.

But the move also puts 50 sales staff, with established relationships with retailers, on the road selling V exclusively. That should bump the penetration rate up to New Zealand's 70% in no time.

So, provided V maintains its popularity, the prospects are for continued fast growth in New Zealand and even faster growth in the bigger Australian market. What about Britain?

Here the picture's a bit less sunny.

For one thing, as Frucor acknowledges, it stuffed up the first time around.

To get V jump-started the company spent a lot of money on marketing, which company-wide consumed 16.2% of revenue in the latest half compared with 10.1% a year earlier.

But the expenditure was out of whack with availability. Penetration, at around 32%, was around half of major competitors'.

For the second stab - the 2001 British summer - Frucor has assembled a 35-strong sales force, mostly Kiwis and Aussies hired straight off the boat. With this latter-day Anzac expedition force it hopes to boost penetration to 50% by June.

Whether the sales will follow remains to be seen.

V's success down under, it seems to Shoeshine, is due in no small measure to our lifestyle. Many's the tanned, fit, surfy-type he has spotted slugging a V-style drink on the bonnet of a Holden Kingswood.

Shoeshine himself hails from the Land of Hope and Glory. Admittedly he hasn't been back for some years.

But British youth, to be brutally frank, don't look like V-drinkers. Your run-of-the-mill type is sallow, spotty and skinny. Many have spikey hair and bullrings through their noses. They seem far more interested in alcohol than exercise. They don't look as though they want an afternoon wake-up call.

On the other hand Britain, it is said, is the home of the all-night rave party, a cultural refinement Shoeshine hasn't experienced. But it looks like thirsty work.

Anyway V is said to be a marvellous hangover cure. Perhaps Frucor could market it on that basis.

Whatever, if Frucor proves it can make money in Britain it will establish itself firmly on the international takeover radar.

Of late the big players' trusty brands have been looking fatigued and they're looking around for replacements.

Coca-Cola has come up with Burn, a Red Bull lookalike, and signed a milk products alliance with Nestle.

Pepsi last year bought niche player South Beach Beverage and Cadbury bought Orangina & Apple.

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