Cadbury chief winning drinks war

JOHN Sunderland's critics loved to warn that, when he led Cadbury Schweppes into the ring with soft drinks giants Coca-Cola and Pepsi, he would get a bloody nose.

'There is an evolutionary change in the soft drinks market. Who knows where it will settle down.' says Sunderland. 'Consumers are hard taskmasters. Who would have imagined they would forsake two mighty brands like Coke and Pepsi for cleaned-up municipal tap water?

'The dominance of carbonated soft drinks has been challenged by 'new-age' drinks. It's an exciting time.'

Cadbury saw change coming and 'deliberately diversified', cutting fizzy drinks from 85% of its US portfolio four years ago to 50%. Now it is reaping the rewards.

When Cadbury's annual accounts appeared this week, it was Sunderland's £1.9m pay-and-shares package (and chief operating officer John Brock's £2.3m) that made headlines.

Less noticed was the reason. Profits from North American drinks were £541m, up 63% in two years and more than doubled since Sunderland became chief executive in 1996. The profit margin is a hefty 25%.

Up against such 'gorillas' as Coke and Pepsi, this is a remarkable feat. Sunderland says: 'We are more the guerillas of the soft drink business. Not having a major cola brand may seem a disadvantage, since cola has 65% of the US market. But we are flexible and can act faster. We now have most of the leading flavoured drinks brands - Sunkist orange, Dr Pepper, Schweppes tonic, Canada Dry, Seven Up.'

Contrast this with the fate of a host of other UK food companies - Rowntree, swallowed by Nestle; United Biscuits, thrashed by Pepsi, then swallowed by Nabisco; Dalgety, Hazlewood, Hillsdown, all long gone - and the achievement is impressive.

Apart from Anglo-Dutch Unilever, Cadbury is the only UK food group to survive in the big league globally.

Dangerous territory
The die was cast in 1969 - the year after Sunderland joined - by the merger with Schweppes. It took the family-run chocolate business into drinks. When Dominic Cadbury took the reins in 1985, the pace of growth and acquisition quickened, culminating in the £1bn purchase of Dr Pepper/Seven Up in 1995.

When Sunderland took over, the spate of deals had pushed the share price into dangerous territory. 'We had issued quite a lot of paper. We had built scale. But professional managers can sometimes lose sight of the end-game, which is that you have capital and are expected to earn a return.'

Under the banner of 'Managing for Value', he set public targets for growth and returns, and

revamped pay so that bonuses were tied to achieving them. Now, sitting in his Mayfair offices overlooking Berkeley Square, he reckons the formula 'had a very powerful effect'. It is hard to disagree. In six years, the shares have doubled, taking Cadbury's market value to £10bn. Pretax profits, £813m in 2001, should top £1bn in 2003.

Against this background, Sunderland is unabashed about board pay. 'Two-thirds of the business is in the USA. We compete there and pay market rates. If you want to get hot under the collar, look at US salaries, which run to tens ofms.'

Though there is no longer a Cadbury on the board, corporate governance is a sensitive subject at a group where Adrian and Dominic Cadbury led debate on the issue. Soon, Sunderland must decide what to do about his auditor, Andersen, engulfed by the Enron scandal.

Freak of nature
He says: 'Firms are so vulnerable to one freak of nature - at Barings or Andersen - which can drag down an entire business when 99% of its staff are not at all culpable.

'We are completely satisfied with Andersen's work. But the reality for us is that we need a global audit facility, and Andersen is fragmenting. We are keeping it under review and reserving our position ahead of our agm [on May 9].'

Sunderland grew up in Lytham St Anne's, near Blackpool, where his father was a quantity surveyor. He had his first taste of the food business in school holidays, selling chicken from door to door.

After university (St Andrews) and a short spell of teaching, he joined Cadbury, passing up offers from Unilever and British Rail. He began in market research, but soon hit the road with the sales force.

When he landed the top job, some saw him as a lifelong company man unlikely to rock the boat. Big mistake. 'I have always been competitive. In the markets we operate, we compete to win,' he says.

Tall and combative, Sunderland is not a publicity-seeker, describing interviews as 'a necessary evil' and himself as 'just a hired hand. I may be the top hired hand, but that's all'.

He and wife Jeanie have four children and three grandchildren. Last week, he took his son on a 'stag trip' to Las Vegas and Argentina, and plans to fish in Cuba this year.

He has plenty of unfinished business at Cadbury. The confectionery side, which includes Trebor mints and Bassett Liquorice Allsorts, has slipped to 45% of the group, despite expansion in Poland, Russia, China and Turkey, and a venture into chewing gum.

War machines
Cadbury's list of brands is huge and managing it cannot be easy. But the confectionery market is diverse - 'Food is part of a country's culture. Chocolate is different across the world' - and Cadbury has found the best route is to acquire locally, then gradually introduce its own brands.

In drinks, Cadbury has prospered as first Pepsi and then Coke stumbled. But the two giants are efficient war machines and the pendulum could swing back any day.

Sunderland has deliberately positioned the group 'at the value end of the supply chain', especially in the US. 'All we own is a trademark; all we make is a concentrate. The downside is that you don't have ultimate control of your route to market.'

Cadbury is small and the threat of takeover is real. Sunderland says: 'Since I joined 34 years ago, Cadbury has lived with the prospect of a bid. It has not happened.'

He puts this down to 'a great management team, which has delivered consistently - though you could take another view, which is that nobody in their right mind would choose to do what we do for a living - compete with Coke and Pepsi on the one hand, and Mars, Nestle and Philip Morris on the other.

'Anyone looking at Cadbury has to ask: do we really want to do that and could we do it a lot better? So far, no-one has stepped up and said yes to both. But business is like sport; you are only as good as your last game.

'My aims now are the same as at the beginning - to build a robust operation in our two core areas.'

At 56, Sunderland shows little inclination to retire. 'I've travelled most parts of the world and worked with great people. It's my good fortune that I got the opportunity to be captain of the ship. I've loved it all.'

Interview by Brian O'Connor