Page 5: Growing the Group
Bass developed into a major international group specialising in the three core sectors of hotels, leisure retail and branded drinks over many years. The company began in 1777 when William Bass established a brewery in Burton upon Trent. In the UK, pubs and breweries usually became part of the same business. Pubs were simply a forward vertical integration from the brewery. Pubs to hotels became a horizontal integration.
Synergies exist between all of Bass’s businesses. Breweries and pubs supply each other, whilst pubs and hotels also fit with hospitality, drinks and related businesses. Bass is at the leading edge of innovation in all of these sectors with a brand portfolio including Holiday Inn, Crowne Plaza, Inter-Continental Hotels and Resorts, All Bar One, O’Neills, Harvester, Carling, Hooper’s Hooch, Robinsons and Tango.
The businesses of Bass are too big to be run as one company. If they were, it would suffer from diseconomies of scale. Its size would simply make it unmanageable. Consequently, each of Bass’s businesses is run separately, but with a strong central control to derive synergies and cost savings.
This case study now focuses on three different examples of business development:
1 Acquisition of Inter-Continental Hotels & Resorts
In the area of hotels and resorts, purchasing one hotel group might otherwise represent ten years of continued organic growth at a time when the organisation needs to develop its exposure to international markets rapidly in order to remain competitive. Inter-Continental Hotels and Resorts is the world’s most global hotel chain with properties in more countries than any other first-class international hotel group. It operates more than 118 hotels and resorts in over 70 countries.
Inter-Continental is one of only five global and truly upscale brands in the hotel industry. Its acquisition has provided Bass with a broader portfolio of brands. This acquisition has enabled Bass to both take advantage of the highly attractive upscale hotel sector and complement the existing portfolio of hotels. This is a growing market in which the number of brands and hotels is limited, offering strong opportunities for a new brand to gain market share. It is estimated that branded upscale hotel revenues have grown at nearly 4.4 per cent per annum in the last ten years and this growth rate is expected to accelerate.
Inter-Continental Hotels and Resorts is a strong brand, particularly in geographic regions where Bass has a reduced presence, such as Latin America. Similarly, Inter-Continental Hotels and Resorts owns few hotels in the USA where Bass is strong. The acquisition of Inter- Continental Hotels and Resorts has provided the opportunity to expand the Bass brand as the right investment opportunities arise. Over 100 target markets have been identified in which to develop the Inter-Continental brand. This could result in an investment as large as £250 million per annum over the next three years.
Bass’s acquisition has added Inter-Continental Hotels and Resorts to a chain of more than 2,600 hotels in over 90 countries and territories. It remains important, however, to develop the best practices and synergies of Inter-Continental Hotels and Resorts, such as the:
- structure of the organisation, e.g. economies of scale and the way individuals work towards common goals
- culture of the organisation
- morale of staff and the degree to which they show support and commitment to the organisation.
These issues help to ensure that synergy leads not to 2 + 2 = 3 but to 2 + 2 = 5, ensuring Inter-Continental Hotels and Resorts operates successfully within the Bass Group.
2 Organic growth of a new product - All Bar One
The idea for All Bar One was born in 1994 when a small team within Bass Leisure Retail decided to set about opening a new kind of bar which would meet the needs of the growing number of young people eager to go out and eat and drink in a relaxed environment. What was needed, they believed, was a new kind of place – one which could not be categorised as either a pub, bar, café or a restaurant but would overcome the limitations of all four.
Located in business districts of regional main cities, the All Bar One concept is to create stylish, cosmopolitan bars designed for business professionals aged 25 to 40 who are disenchanted with the traditional pub but who appreciate good food and drink served in a lively, fresh environment. The first All Bar One opened in December 1994 and was designed to appeal to a wide cross-section of customers looking for quality, value for money and service.
Since then, with sales exceeding original estimates, All Bar One has been rolled out as a brand nationally. There are currently 45 bars, with more planned where financial opportunities exist to maintain a healthy return on the investment. This will bring the total to 60 outlets by the end of 1999. The All Bar One concept is a good example of the organic growth of a new product. Money spent shows a particularly good percentage return on investment of between 25 and 30 per cent per annum. This means a payback in three to four years.
3 Organic growth of a new market - Tango in Poland
Management consultants identified Eastern Europe as an attractive region for Tango. Poland is the ‘jewel in the crown’; with a population of almost 40 million people and low per capita carbonate consumption (only 32 litres per head), there is huge potential for growth. Exporting Tango to Poland was one way of entering the Polish market. However, this option would have involved large transport costs. The alternative route chosen by Britvic International was to franchise the Tango brand in Poland. Through a franchise relationship, Britvic retains ownership of the brand name, while the local franchise partner is responsible for manufacturing, selling and distributing Tango in Poland. Britvic International provides support to the local franchise partner in a number of areas such as brand marketing, business planning, sales training and technical expertise.
Over 200 Polish companies were screened during the search and selection process. Criteria for selecting a franchise partner include strong local distribution, good links with the trade, quality manufacturing facilities, entrepreneurial management style and good knowledge of the local market. Hoop was chosen as Britvic International’s franchise partner in Poland. Hoop is the fifth largest soft drinks company in Poland, currently selling its own range of water, still and carbonated products. The Hoop range did not include a premium brand and Tango, therefore, complements the Hoop product range.
The aims of the Tango launch were to:
- launch Britvic Tango as a premium fruit carbonate in Poland
- develop a long-term franchise relationship with Hoop
- achieve break-even in year three and payback in year five.
Other premium brands in the fruit carbonate sector include Pepsi’s Miranda and Coca-Cola’s Fanta. However, Tango’s black packaging and striking logo mean that it is easily distinguishable from its competitors. Barriers to entry included lengthy, bureaucratic processes required to register both the product and the packaging with the Polish authorities. Poland is a huge country so the initial marketing focus was on three major cities - Warsaw, Poznan and Gdansk, followed by a roll-out to other regions across Poland.