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Desnoes and Geddes Limited

Desnoes and Geddes Limited

214 Spanish Town Road
Kingston, 11
Jamaica
Telephone: (876) 923-9291
Fax: (876) 923-8599
Web site: http://www.redstripebeer.com

Public Subsidiary of Udiam Holdings AB
Incorporated:
1918 as Desnoes & Geddes Company Limited
Employees: 750
Sales: JMD 9.13 billion ($148 million) (2005)
Stock Exchanges: Jamaica
Ticker Symbol: DG
NAIC: 312120 Breweries

Desnoes and Geddes Limited (D&G) produces one of Jamaica's best-known exports, Red Stripe beer. It also brews other malt beverages for the local market under the Red Stripe Light, Dragon Stout, Malta (nonalcoholic), Smirnoff Ice, Guinness, and Heineken brand names. Only a small portion of D&G's shares are publicly traded. British beverage group Diageo PLC is the ultimate parent company. It has a 58 percent holding in D&G through Udiam Holdings AB of Sweden.

ORIGINS

Desnoes and Geddes Limited was formed in 1918 by Eugene Peter Desnoes and Thomas Hargreaves Geddes, who combined their two shops into one business. (According to a 75th anniversary retrospective in the Gleaner, the two had met earlier while Desnoes was employed as a 12-year-old "door opener" at the West Indies Mineral and Table Water Company.) The firm originally made soft drinks, or "aerated and mineral water," according to its prospectus in the Gleaner, but also sold alcoholic beverages shipped in from abroad. D&G was incorporated on July 31, 1918. A notable early product was "Kola Wine."

After about nine years, the pair opened the Surrey Brewery in downtown Kingston. The first Red Stripe beer was produced there in 1928. The famous brand was originally applied to an ale, which was too heavy to suit local tastes. The lager version, which would garner worldwide acclaim, was developed in 1938 by Paul H. Geddes, son of the company founder, and Bill Martindale. The lager would be described as light and refreshing, the perfect complement for the sultry Caribbean climate.

The British government tried taxing the beer in 1935 in order to protect sales of U.K. brews on the island. This proved very unpopular and was soon repealed.

Beer sales took off during World War II due to the influx of Allied soldiers to the island. In 1947, D&G was designated the Jamaican bottler for Pepsi Cola.

Peter S. Desnoes, son of the company founder, became chairman in 1952. He had started with D&G in 1928 as a salesman. A new plant was built to replace the Surrey Brewery in 1958. By this time, the sons of the founders were in charge of the business. In 1960, D&G began bottling Schweppes products under license.

Although Jamaica became free of British rule in 1962, one of the empire's fictional heroes would carry the Red Stripe banner to new world audiences. The beer was featured in Ian Fleming's James Bond spy novels and movies beginning with Dr. No. At this time, D&G had about 300 employees.

Writing on the occasion of Jamaica's independence, a local columnist referred to the beer as "far beyond the capacity of mere colonial dependence." A new plant was built in Montego Bay in 1966 to satisfy growing demand for soft drinks, which were mainly distributed locally. By 1967, annual profits were JMD 1 million.

1970 PUBLIC OFFERING

Desnoes & Geddes continued to grow and offered 8 percent of its shares to the public in 1970. Proceeds were earmarked to fund a JMD 3 million expansion. At the time, products included several varieties of soft drink, including Jamaica Dry Ginger Ale and a concoction called "Teem," which was produced under license. Turnover exceeded JMD 20 million for the year. In 1973, D&G began brewing Heineken beer through a joint venture with the Dutch brewer. It also started brewing U.K. stout brand Mackeson.

D&G launched the popular Ting Grapefruit Crush soft drink in 1976. The name was Jamaican dialect for "thing." Made with locally sourced grapefruit, it was soon being exported to more than 20 other countries, beginning with Barbados. Ting and Old Jamaica Ginger Beer, another naturally based beverage, were introduced to the United Kingdom in 1988, where they were instantly successful.

Ting's launch in the United States did not go as smoothly, reported the Associated Press. In 1985, D&G began exporting the drink to cosmopolitan areas with large ethnic Caribbean populations. Guinness had been unable to register the trademark in the United States, however. Several years later, Kraft General Foods, owner of the Tang brand of drink mix that was famous for going with the astronauts to space, sued D&G for trademark infringement.

Red Stripe beer entered the U.K. market in the late 1970s. A local brewer, Charles Wells of Bedford, made it under license; its distribution would extend to Italy and Spain, according to London's Financial Times.

The fortune of company heir Paul H. Geddes was subject to Jamaica's first palimony suit, launched after Geddes left his longtime lover Helga Stoeckert for a much younger American woman. In 1992 Stoeckert filed a claim on JMD 14 million (£200,000) in joint accounts at an English bank. She lost the case after a dozen years of legal arguments that extended as far as the United Kingdom's Privy Council. Geddes died in 1999 at the age of 89, leaving an estate worth $600 million in the charge of his widow, Margie.

Plant capacity was doubled around 1990, one of many expansions over the years. The company employed about 1,200 people at the time. D&G had continued to brew other brands under license. It started making Scottish & Newcastle PLC's new Strong Jamaican Ale around 1991. One of its relationships, however, was about to become much more involved.

GUINNESS CONTROL IN 1993

Guinness PLC, the U.K. beer and spirits giant, acquired a 51 percent holding in D&G for $62 million in September 1993. Civic leaders described it as the largest investment in Jamaica since the 1960s, reported the Journal of Commerce. The backing of the Guinness Group, later dubbed Diageo, greatly increased Red Stripe's international distribution.

Guinness had been shipping its own brews to the Caribbean since the early 1800s. D&G was one of a dozen brewers in the West Indies producing its trademark stout under license. D&G also had been producing its own brand, Dragon Stout, since 1961.

COMPANY PERSPECTIVES

There is a growing appreciation of all things Jamaican. Red Stripe appeals to the trendsetters who say "apart from the quality, we love this beer because it is from a country where the people have rhythm, soul and live life to the fullest." People value the Irie Vibe that is Jamaica. Our strategy will focus primarily on allowing the quality and image of this great Jamaican product to do most of the talking.

According to the Financial Times, Red Stripe was the United Kingdom's third favorite packaged lager by the early 1990s. While Red Stripe was popular in certain markets in the United States, such as New York, it was but a tiny player with about 500 competitors, noted the Associated Press. The beer's consumption in the United States took a dramatic rise, a reported 60 to 90 percent in one month, following a placement in the Tom Cruise film The Firm in the summer of 1993. Author John Grisham had written it into the novel of the same name. The beer also had shown up in another Tom Cruise movie, Cocktail.

D&G was working to improve productivity in the late 1990s to help it compete with imports. A $25.7 million rights issue was launched in 1997 to fund the expansion. According to Reuters, though D&G controlled 90 percent of the local beer and soft drink markets, Jamaica's rampant inflation was making it hard to stave off lower priced competition.

FOCUS ON BEER IN 1999

In 1999, D&G sold its wine and spirits business to Wray & Nephew Ltd., a Jamaican rum producer. Growing exports helped make up for falling domestic demand in 1999. Total turnover was up 2.6 percent to JMD 6.3 billion.

The local soft drinks business was getting more competitive. In 1999 D&G sold its soda pop plant to the Pepsi Cola (Jamaica) Bottling Company for an estimated $25 million, allowing it to concentrate on the brewing business. According to the Gleaner, Ting sales rose more than 200 percent within two years of the PepsiCo affiliate taking it over. Pepsi had invested in new bottling equipment and trucks.

A new product, Red Stripe Light, was introduced in Jamaica in 2000. Group turnover was JMD 5.1 billion in 2001. Pretax profit was $1.3 billion.

The company held a ceremony in February 2001 as its name changed from D&G to Red Stripe Limited. This was, in large part, a marketing gimmick designed to pitch D&G as the "world's coolest beer company." In spite of all the fanfare, the Desnoes & Geddes name remained in use on share certificates and annual reports.

2003 MARKETING PUSH

Whatever it was calling itself, the company doubled its marketing budget in 2003. Red Stripe over-the-top television ads in the United States revolved around the tagline, "Hooray beer!" They featured the brand's dapper "Ambassador of Beer" discussing the brand's merits in amusing situations. This was extended into a two-minute infomercial for late night television to great comedic effect.

The brand's U.K. brewer, Charles Wells Company, was acquiring London rock venues to reinforce a connection with live music. Wells, which had recently won back distribution rights, also was running a press campaign. In Jamaica, D&G was facing a tougher sell, as a 45 percent increase in Jamaica's Special Consumption Tax obliged the company to raise prices on all of its brews except for the nonalcoholic Malta.

D&G's total turnover rose 16 percent in 2005 to JMD 9.1 billion. Exports accounted for JMD 1.9 billion, a 50 percent increase. Gross profit remained a handsome 37 percent of turnover; in 2005 this amounted to JMD 3.4 billion. Pretax profit was JMD 2.5 billion. The company had 750 employees in 2005, 8 percent fewer than the previous year.

The company's main strategic goal was making Red Stripe a truly global brand. A push into Australia and Europe, where it was being relaunched in Sweden and Switzerland, helped raise exports 31 percent for the year. D&G also was investing JMD 378 million in capacity upgrades.

D&G continued to promote its brands at home by investing in sporting and music events. It was the largest single sponsor for soccer in the Caribbean. It sponsored the Jamaican national soccer team, the Reggae Boyz, as well as local clubs. The group invested JMD 18 million in the Red Stripe National Cricket Championship. Support for the massive Red Stripe Reggae Sumfest included the Red Stripe Big Break talent contest.

KEY DATES

1918:
Desnoes & Geddes Limited (D&G) is formed to produce soft drinks.
1928:
The first Red Stripe beer is produced at D&G's Surrey Brewery.
1947:
D&G becomes the Pepsi Cola bottler for Jamaica.
1958:
A modern facility is constructed.
1961:
Dragon Stout is introduced.
1970:
D&G goes public.
1973:
D&G begins brewing Heineken under license.
1976:
Ting grapefruit drink is launched.
1993:
Guinness acquires control of D&G.
1999:
D&G divests wine and spirits and soft drink lines.
2003:
Marketing spending is increased in the United States and the United Kingdom.
2005:
Turnover reaches a record JMD 9 billion ($148 million).

PRINCIPAL SUBSIDIARIES

Foods of Jamaica (Export) Limited; Red Stripe Brewing Company Limited.

PRINCIPAL COMPETITORS

Banks Barbados Breweries Ltd.; Big City Brewing Company Ltd.; Carib Brewery Limited; Heineken N.V.; Labatt Breweries of Canada; Scottish & Newcastle PLC.

FURTHER READING

Beard, David, "Promo in 'The Firm' Produces Heady U.S. Sales of Jamaica's Top Beer," Associated Press, September 6, 1993.

Beaumont, Stephen, Premium Beer Drinker's Guide, Richmond Hill, Ontario: Firefly Books, 2000.

Bittar, Christine, "Tools of the Trade," Brandweek, August 18, 2003.

"Charles Wells Boosts Red Stripe Presence with Rock Venue Buyout," Marketing Week (U.K.), February 5, 1998, p. 8.

"The D&G Story," Gleaner, Desnoes & Geddes 75th Anniversary Supplement, July 7, 1993.

Davenport, Rosie, "Wells Puts Red Stripe Back on the Map," Grocer, February 8, 2003, pp. 50+.

"Desnoes & GeddesExpansion Plans," Sunday Gleaner, November 29, 1970, pp. 21, 29.

"Desnoes & Geddes' Jamaican Ginger Drink Takes Root," Grocer, May 25, 1991, p. 76.

Desnoes & Geddes Limited, "Issue and Offer for Sale of 700,000 Ordinary Shares of $1.00 Each at a Price of $1.50 Per Share," Daily Gleaner, February 28, 1970, pp. 24-25.

, "A Salute to Jamaica's Independence," Times (London), August 3, 1962, p. xi.

"Desnoes & Geddes Looking Good," Cana Business, October 1, 1999.

"Desnoes & Geddes Makes Name Change," Modern Brewery Age, December 4, 2000, p. 1.

"The Desnoes & Geddes-Pepsi Story," Gleaner, D&G "Pepsi 40" Supplement, May 27, 1987.

Dill, Mallorre, "Simply Red," Adweek, August 27, 2001, p. 22.

"From Darkness into Light," Times (London), April 26, 1971, p. V.

"Geddes Estate Wins Privy Council Palimony Suit," Gleaner, December 15, 2004.

"Geddes Takes on D&G," Gleaner, August 24, 2000.

Geitner, Paul, "Moon Drink Takes on Island Soda," Associated Press, January 13, 1992.

"Greater Focus on Brewing," Cana Business, October 1, 1999.

"Guinness Import Co. and Labatt U.S.A. Trade Key Brands: Red Stripe and Dos Equis," Modern Brewery Age, September 18, 1995, p. 1.

James, Canute, "Guinness Buys 51 Percent of Jamaican Brewer for $62 Million," Journal of Commerce, September 27, 1993, p. 4A.

K.A. Morgan Ltd., "Red Stripe: Jamaica's Famous Lager!," Times (London), advertisement, February 21, 1966, p. viii.

Khermouch, Gerry, "Labatt's Keeps Red Stripe Running with Promos," Brandweek, February 7, 1994, p. 11.

"Late Night Infomercial for Red Stripe Beer," Beverage Aisle, October 15, 2003, p. 14.

"Light Years of Laughter," Gleaner, May 16, 2003.

Luke, Peter D., "Inflation Hurts D&G," Sunday Gleaner, May 12, 1974, p. 17.

Rawstorne, Philip, "Guinness Silent on Red Stripe Stake Speculation," Financial Times (London), April 27, 1993, p. 25.

, "Jamaican Purchase to Boost Stout Sales," Financial Times (London), September 24, 1993, p. 23.

"A Red Stripe Please! Lifetime Achievement Award," Jamaica Observer, June 1, 2003.

"Say Red Stripe Please!," Gleaner, February 22, 2001.

"Shareholders of Jamaican Brewer Approve New Stock," Reuters News, June 4, 1997.

Smikle, Patrick, "Jamaica: Local Bottler Prevails in Copyright Case," Interpress Service, November 5, 1997.

"Ting Launches Silver Anniversary," Gleaner, November 26, 2001.

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