COTT BRANDS POUR INTO EUROPE AS GLOBAL RETAIL CUSTOMERS CLAMOR, COLA SALES RISE-WITHOUT MARKETING

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Nearly four years ago Canadian-based Cott Corp. was struggling to redefine its soft drink beverage business when David Nichol, then president of Toronto's Loblaw Cos. groceries' product development arm, asked the company to produce his chain's President's Choice store brand cola.

"Coca-Cola had decided not to [continue as] a private label packer for Loblaw's, and David wanted a high-quality brand that he could offer at a lower price point [than Coca-Cola]," said Cott VP David Goldman.

That request changed Cott's future. Sales of President's Choice Cola began outstripping Coke and Pepsi almost two-to-one in Loblaw's Ontario stores.

Privately owned by the Pencer family of Mississauga, Ont., since 1955, Cott is Canada's largest private label soft drink bottler. Under Chairman Gerald Pencer, Cott posted sales of $366.5 million for the first nine months of 1993 compared to $116 million for all of 1991.

While that explosion was due to a stable of Canadian and U.S. customers including Loblaw's (President's Choice) and Wal-Mart (Sam's American Choice), another growth spurt is expected as a result of rapid international expansion-until late 1993 Cott wasn't even a player in Europe.

By last month, the company was supplying retail brand soft drinks to 54 chains and there are an additional 10 retailers in the U.S. Cott has placed on a waiting list while it searches for additional bottling capacity.

In Canada, the company supplies 16 retailers, in addition to Loblaw's, and internationally there are 11 customers, including the U.K.'s Sainsbury, the Australian division of K mart Corp. and four of the five major retail chains in South Africa.

"Our limitation only is bottling capacity," said Mr. Goldman.

The company doesn't spend its capital on building new production facilities, but seeks out excess capacity of already established bottlers.

And it doesn't spend money on advertising and marketing, either. Originally a New England regional brand of fruit-flavored drinks, the Cott brand came to the attention of the Pencer family in the mid-1950s, when the sons of Harry Pencer-William, Samuel and Gerald-were attending summer camp in New Hampshire and got hooked on Cott sodas. Harry Pencer then licensed the Canadian rights to the name and began marketing Cott brand soft drinks in Canada.

In the 1960s, Cott's U.S. owners sold the rest of the company to Cadbury Schweppes, which continues today to market Cott colas and fruit-flavored drinks in selected cities in the Eastern U.S.

The Pencers still sell a Cott cola and line of flavored soft drinks in Canada, but have opted not to put much marketing muscle behind them on the theory that its budget couldn't possibly fight the deep pockets of Coca-Cola and Pepsi-Cola.

Instead, Cott concentrates on private label beverages and handles its own limited marketing through The Design Watt Group, an in-house operation. The focus is on packaging and promotion for itself and any retailer that requests it.

But that hasn't stopped Cott from expanding across the Atlantic. In late 1993, Cott began eyeing the U.K., continental Western and Eastern Europe. The company's first move in Europe was to arrange an exclusive agreement with Cadbury Beverages, the European soft drink arm of Cadbury Schweppes, to allow Cott to use the soft drink marketer's excess production capacity. Cadbury has manufacturing facilities in France, Spain, Portugal and Belgium.

But due to Cadbury's exclusive agreement with the U.K. arm of Coca-Cola Co., Cott could not use Cadbury's facilities in the U.K. So in late January, Cott acquired a majority interest in Benjamin Shaw & Sons, giving Cott production facilities and control of the U.K.'s largest independent canning plant supplying all the U.K.'s leading supermarkets, including Sainsbury, Tesco, Safeway, Asda and Gateway. "We were reluctant to spend a lot of money building our own manufacturing facilities when we could use existing facilities to produce our beverages," Mr. Goldman said.

Sainsbury, which began marketing its Cott-produced Classic Cola in mid-April, is the first U.K. retailer to sign up for Cott's special cola formula. The French Promodes company, operator of hypermarkets under the Continente name, will be next on the market.

"We had no presence in Europe as recently as November and December of last year," Mr. Goldman noted. "But we felt [Europe and the U.K.] represented an enormous opportunity for us, especially as Sainsbury and other retailers sought out our help. They asked us to help them [develop] a quality retailer brand, and it was an opportunity we couldn't ignore."

Retailer brands are growing in Europe and now account for 20% to 40% of the soft drink market in the U.K. and continental Europe, according to Mr. Goldman.

Buoyed by the success in soft drinks, Cott is beginning to think beyond beverages into other food lines.

"We don't want to limit ourselves," Mr. Goldman said.

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