26th August 2005 - Chairmans statement from annual report
These are interesting times for an Irish whiskey distiller. After generations in the doldrums Irish whiskey is once again the flavour of choice for a growing number of drinkers. Irish, as a premium brown spirit, is growing strongly in a number of markets in particular the US where sales have doubled in 6 years. It is highly likely that the US will, in 2006, surpass the Irish domestic market as the largest market in the world for Irish whiskey.
The entrance of Diageo into the market, with their purchase of Bushmills, brings the most powerful force in world spirits into the arena. The demise of Allied Domecq poses problems for Tullamore Dew and offers opportunities for Pernod. The new distributor for Tullamore Dew is likely to be a company with worldwide distribution. One thing is sure Irish whiskey will appear in new outlets.
Despite a doubling of world sales in the last 10 years, I believe that opportunities are now better than ever. Total sales of Irish whiskey equals to less than 4% of Scotch sales. The two main distributors offer worldwide distribution. Irish whiskey is now appearing on shelves in China, India and South America. Bushmills, which is largely a two market brand, the US and Northern Ireland, will shortly be sold through the worlds strongest drinks pipeline which supplies over 180 countries.
Taking advantage of the opportunity is the challenge for Cooley. We are struggling to find routes to market. Since our decision three years ago to focus on developing our own brands our sales growth has stalled. We have had some success with our single malts so our sales mix is better resulting in greater profits. In 2004 we grew profits by 10.5% on a sales increase of 5%. Despite a higher marketing spend, our main brand Kilbeggan, is finding it difficult to gain shelf space. Where we have listings we don't always get rotation.
The Review of Operations below gives details of the marketing work we are doing. Marketing is long term. Getting good distributors, developing a consumer marketing programme and implementing the programme takes years. We have evaluated our distributors and made new appointments in Ireland, North and South and in the UK. We have completed detailed reviews of our activities in France and the United States where changes are now underway.
We continue to win honours, awards and medals for the quality of our products and for our innovations in packaging. But quality and packaging are not enough. The drinks business is a duopoly which is brand and marketing intensive. Consumers once they select a brand are very reluctant to change. Because of our small size we do virtually no consumer advertising. Instead we rely on tastings and on our websites to introduce people to our products. We will continue to expand our marketing within the confines of our finances.
For a small company finance is always an issue. Apart from investing in marketing we continue to lay down substantial stocks of new whiskey. We operate the pot stils about 46 weeks a year. The 800,000 case annual capacity column stil grain distillery operates for a few months each year.
Maturation is a massive investment for distillers. We must mature our whiskey for up to 15 years. This requires extensive warehouse capacity. We have almost 50,000 barrels of whiskey maturing in over 100,000 sq feet of warehousing yet we need more space. We are constructing a new 20,000 sq foot warehouse on our site at Cooley. This will be completed in the last quarter of 2005.
We are continuously upgrading our quality and environmental control processes. This is an expensive investment but must be done to remain a top quality distiller.
Where to now?
Cooley needs to be a brand, consumer and consumer led company. Easy to say but
difficult to implement because of financial constraints and corporate culture.
Financial constraints led Cooley to develop sales of Retail Own Label and Private
Label when ideally we would be developing sales of our own core brands. Almost
half of our sales are Retail Own Label. We supply most of Europe's large chains.
It is a tough but profitable business. We are working to improve our relationship
with retail buyers to expand and deepen the offerings of Irish whiskey on their
shelves.
The Private Label business involves Cooley supplying whiskey to an existing drinks company either a distiller or a distributor. These are companies with access to markets who wish to broaden their product line. This strategy clearly creates direct competition for our own brands but given the structure of the drinks business the buyers often sell to sectors we cannot reach. I hope to be able to make an announcement in this area in the near future.
The Cooley culture is strongly quality orientated and cost conscious both excellent qualities and vital in a new venture. You can see from our awards that we have top quality whiskies. We have built the Cooley organisation from scratch on a shoestring. Changing to an organisation focussed on FMCG marketing is taking time.
For some time now we have been seeking a strategic alliance with a multinational drinks company. This would give Cooley access to markets. Our small size and limited brand awareness means that the very large companies have little or no interest. Multinationals see international brand development as a 7 to 10 year undertaking and as such prefer to buy into known brands rather than to build. For Cooley to achieve our objective of doubling sales within 6 years we need partners. We continue to pursue likely candidates.
Future
The future for Irish whiskey is very bright. Ireland is fashionable, brown spirits
are regaining lost lustre while worldwide distribution by the industry captains
puts bottles of Irish on shelves and behind bars everywhere.
The opportunity open to Cooley, as the only independent Irish distillery, is great. We are working on ways and means to take advantage of the opportunity.
John Teeling
Chairman
26th August 2005
LINK TO FULL ANNUAL REPORT - .PDF DOCUMENT
Past Press Releases
November 2004 - Given the elections in the US we thought people might be interested to see....
October 2004 - Cooley Distillery appoints Febvre & Company as distributor for Northern Ireland.
Clash of the Cooleys - Article from www.maltmadness.com
July 2004 - Gold Medal Bonanza in London
June 2004 - Barry Fitzwilliam Maxxium - Exclusive Irish Distributorship
May 2004 - Connemara Whiskey website goes live
March 2004 - Connemara cleans up at 2004 San Francisco World Spirits Competition
March 2004 - Interview with John Teeling, chairman of Cooley Distillery with Starchef.com
January 2004 - Cooley Distillery sponsors the Irish EU presidency
13th October 2003 - Connemara peated 12 yr old Whiskey introduced
18th September 2003 - Highlights of Chairmans comments at AGM
