Serving up a new strategy

A journalist from a Danish newspaper recently flew into London to interview Isaac Sheps, head of Carlsberg's UK operation. The hack got his story and then flew home. Given the state of the UK beer market - as perceived from across the North Sea - it was perhaps unsurprising that the resulting article was headlined 'Mission Impossible'.

Sheps smiles as he recalls this anecdote. After all, this is the man who until his arrival in the UK a year ago headed up Carlsberg's operations in a number of former Eastern Bloc territories including Romania, Bulgaria and Serbia, hardly a collection of cushy numbers.

"In such places you have a different set of issues to cope with than here," Sheps says, suggesting everything from shortages of raw materials to the presence of politics in business matters were bugbears in his previous role. "The UK is far more competitive, but it's a lot of fun," he adds.

There are not many people working in the highly aggressive UK beer market who would suggest they find the sector 'fun' at the moment, beset as it is with declining sales, a pub sector at odds with the off-trade and the debate raging over the amount we Brits like to neck on an annual basis.

Significant changes

That said, Sheps looks cheerful enough. In the top job for a year after replacing previous incumbent Doug Clydesdale, the 60-year-old Romanian-born executive knew what challenges lay in store. He appears not to have shied away from them; rather he's made a number of significant changes to the way Carlsberg's UK operation is run.

Looking at the logistics side, Sheps says he and his team spent time talking to customers and considering ways of doing things better, such as ensuring trucks are full and looking at what time orders are closed to get the best and most cost-effective delivery times.

The most significant impact, however, has been upon the brewer's sales force, which in his own words Sheps has "radically restructured". He merged the separate teams covering the on and off-trade, so now a typical area manager will look after a pub and a corner shop on the same street, whereas before it would have seen two people do the job.

"Many people warned me off doing this," Sheps says, noting that there were obviously job losses from such a move. "We lost around 250 people, 10 per cent of the total workforce, following the changes," he says.

People went from all levels of the business, top to bottom, Sheps says. But the changes mean there are more people selling Carlsberg's beers, and fewer people managing the process.

It wouldn't have been all plain sailing though, clearly; after all, who wants to lose their job? But Sheps says Carlsberg UK staff had an "urge" to change the way the company worked: "People knew things could be done differently. It was like popping the cork on a champagne bottle, releasing all that pent up energy.

"There's a momentum for change here and we picked up those who wanted to go with us on the journey."

As a consequence of his input Carlsberg UK has seen volumes up one per cent in a market down by more than five times that, and saved the company "10s of millions" of pounds, says Sheps.

But it's not just about saving cash, Sheps claims.

"We have looked at the company from the bottom up. We're looking at providing value and how to focus on selling our products better," he says.

Sheps peppers his conversation with buzz phrases, such as 'You cannot beat success'.

"When times are good people pay less attention to things like costs," he says. "When times become tougher you have to look at what can be done differently."

State of mind

It's a state-of-mind thing, Sheps argues. "You have to get people to believe they can do things differently and do them better. I have never liked the 'status quo'. I prefer to challenge perceived wisdoms," he explains.

If challenges are to be tackled then the process has to be communicated in the right way. And communicating with his 2,000-odd employees is crucial, Sheps says.

"There needs to be a consistency of message that is communicated internally and effectively," he says. The boss regularly writes to staff in what he calls his 'Letter from Isaac'.

He adds: "In it I outline what it is we are trying to achieve. I set challenging targets but I also say that mistakes are acceptable. The only bad thing about making a mistake is not learning from it."

And just as the keen tennis-player Sheps says, he only wins games by making fewer mistakes than his opponents, and he is equally clear about learning from those his own company has made. One area that needs remedying is the issue of supply contracts. Carlsberg UK was "burdened with a lot of old contracts which were simply unprofitable", he argues, and they needed to be - and are being - renegotiated.

"We want a contract to be win/win for both parties. The days of cheap beer or contracts that prove to be unprofitable are over," he says.

While acknowledging that there are always elements of a deal that are not 100 per cent satisfactory for either side he adds: "If it isn't win/win, it ends up being a bad contract. The big customers, the large pubcos, do understand the situation. They are being more realistic."

Whether the big operators will be in a weaker bargaining position when the next contracts come round for renewal - given the industry issues that have bedevilled the sector in recent months - is something Sheps declines to be drawn on. Instead he emphasises where progress has been made.

"We want value, not volume," he notes, though the latter is growing too, thanks to deals in the on-trade like its new arrangement with JD Wetherspoon, where Carlsberg's beers recently replaced a number of Molson Coors brands.

"Deals like this show we can succeed in the on-trade," Sheps says. When it is pointed out that Wetherspoons normally drives a hard bargain Sheps is diplomatic. "I'm not going to discuss details of the deal, but put it this way, we're not losing money," he says.

The point Sheps wants to make is that the managed pub chain "understood Tuborg", Carlsberg's 'other' Danish lager. "We've the perfect portfolio for the pub: premium lagers, world beers, San Miguel," Sheps says.

Which begs the question, why shutter the brewer's Leeds facility in two years' time? "While I understand the sentiment surrounding the Leeds brewery there is no reason to stop the closure," answers the Carlsberg boss who has inherited the fallout from the decision, which could eventually see up to 150 staff lose their livelihoods. He points to capacity issues that have rendered the plant surplus to requirements.

However, Sheps is keen to stress - yet again - that the Tetley brand will be on the receiving end of significant investment, including its cask variant, which accounts for around 15 per cent of Tetley sales. Talks have begun with third party brewers to produce the beer.

Getting better?

So after a year in the top job does he think the business is getting better? Acknowledging the brewer still lags behind the Big Three, Sheps points to a nine per cent volume market share in the on-trade - 14 per cent overall.

He is also proud of a recent six-week sales spike in the on-trade that was greater than last year's figures, the first time such a year-on-year performance has happened for Carlsberg in the UK.

Most of all he talks glowingly of those of the company's staff who have grasped the nettle and gone with his vision for the company. "Setting out a clear objective from day one was vital," he says.

So did he think he'd taken on a 'Mission Impossible' then? "People are smiling at Carlsberg UK now," he says. "They are motivated."

That'll be a 'no' then…