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What do you get when a Vancouver stock promoter launches a New Age soft-drink company? In the case of Clearly Canadian, lots of un happy investors
DOUGLAS MASON IS IN HIS element. Granted, all is not good news at this, the 1996 annual general meeting of Clearly Canadian Beverage Corp., which is taking place in a modest meeting room off Vancouver's Howe Street. But Mason is a showman, and this is his show. Eschewing speaking notes, the 49-year-old executive paces and gestures, expounding on his company's new products, including a new soft drink that resembles nothing so much as a handful of marbles floating in a surgary broth. His voice cracking with sincerity, Mason wraps up the meeting with a pledge to investors: "This will not continue to be the incredible shrinking company."
The crowd wants to believe him, but promises of a turnaround have been coming since 1993, when Clearly Canadian's sales first began to slide. Last year, sales tumbled all the way to $65.7 million, about one-third of where they stood in the company's heyday. Meanwhile, the bottom line showed a loss of$5.4 million, providing plenty of fuel for critics. To the skeptics, Mason and his company are in irreversible decline. One of the highestflying stocks of the early 1990s, Clearly Canadian is now fighting for its life in a brutally competitive soft-drink sector.
Mason has heard the catcalls before. But this time out, he has some good news to tout. Among several new products, Mason is especially enthusiastic about Orbitz, the marbles-in-sugared-water beverage. In the very early going, it appears to be the company's first success since its sparkling water hit the shelves eight years ago. Simultaneously, Clearly Canadian has repossessed a faltering franchise distribution system, cut costs and raised earnings-to $812,000 for the first six months of 1996. Third-quarter results show the company's first simultaneous growth in sales and profit since 1993. For the first time in a long while, it's legitimate to ask: can Clearly Canadian-and its much maligned president-make a comeback?
MASON'S OFFICE IS LOCATed on the top floor of a waterfront tower built to house another high-flying but now defunct Vancouver company, Daon Development Corp. From his chair, Mason can watch stock quotations crawl by on not one but two computer monitors. Such are the tools of a busy stock promoter. In addition to his day job at Clearly Canadian, Mason chairs four public companies: two junior mining firms, a holding company and a technology start-up involved in sewage treatment. Mason also sits on the advisory council of Groome Capital Advisory Inc., an investment dealership and consulting firm specializing in mergers and acquisitions.
Regardless of these diversions, Mason claims his heart and soul is with Clearly Canadian. "This is my job, my career, my passion, my baby," he says. "I start here about 6:30 a.m. I usually go home about 5 to 6 p.m. There's probably an hour in the day that I may receive calls, look at some other business or have some other thing to do, but I work 50 hours a week for Clearly Canadian. That is my job."
Maybe. But Mason's reputation continues to be that of a Howe Street sharpie. He spent 15 years in the grocery business before making his first pile as a seed investor in Murray Pezim's International Corona Corp., the discoverer of the Hemlo gold strike in Northern Ontario. Mason went on to help launch Jolt cola in the mid-1980s. Jolt, a cola drink with an extra caffeine kick, got off to a supercharged start, but Mason saw even brighter opportunities in running his own show. In 1987 he started up Clearly Canadian and pioneered the market for premium-priced, health-conscious beverages. His fruit-flavored, noncaffeinated drinks attracted a fanatical following among consumers across North America. In the days before Arizona Star Resource Corp., a gold and copper exploration and development company, Clearly Canadian set a record for capitalization on the Vancouver Stock Exchange.
The fizz went flat when large and small competitors flooded the alternative beverage market in the early 1990s. Coca-Cola Co. launched its Fruitopia line of fruitflavored drinks. Other competitors tempted the market with iced-tea beverages such as PepsiCo Inc.'s Lipton Brisk. Suddenly, Clearly Canadian could no longer spend 10% more to produce a premium beverage and then charge 50% more for it.
The company's fall from grace showed it to be lacking the size and marketing clout needed to sustain its sales. Clearly Canadian's decline also focused attention on the issue of character. Vancouver's market watchers understandably were angry when Mason disposed of $6 million in Clearly Canadian stock during the firm's 1993-'94 slide. (Recently he has been buying back in.) Shareholders howled, too, when he decided to boost his salary to almost $500,000 in 1994, when company revenues had fallen by more than 50% from their peak. It took pressure from investors to force Mason to trim his salary back to a still substantial $313,000.
To the surprise of his detractors, Mason has survived, with his blow-dried charm and trademark smirk intact. Among some members of Vancouver's business community, his name evokes little respect. But away from BC, Mason gets a warmer reception. In the October issue of his New Jersey-based investment newsletter, Higher Returns, analyst Jeff Hirsch uses Clearly Canadian as an example of a bargain stock ready for a rebound: "On the fundamental side, a company reorganization, improved earnings and insider buying all lend confidence that a major turnaround is in the making." But to make that prediction come true, Mason is going to have to prove that his new products can at least come close to his earlier success.
IT'S MAY 24, 1996, THE FRIDAY PREceding the US Memorial Day weekend, when Clearly Canadian marketing director Jonathan Cronin places a small bottle shaped like a lava lamp on his office table. "Go ahead, drink it," he says. Inside the bottle, yellow "orbs" the size of small marbles circulate in clear liquid. The liquid tastes sweet, the orbs are chewy. As they like to say here at Clearly Canadian: "You either love Orbitz or you hate it."
This weekend Cronin's agents-bearing samples, stickers, T-shirts and FM stereo headphones-will fan out among holiday gatherings from Toledo, Ohio, to New York. The company is intent on milking every free or low-cost source of publicity possible. Its new beverage will become a news item on Good Morning America and The Rosie O'Donnell Show, and in articles in a host of magazines and newspapers.
Clearly Canadian's latest marketing flurry is a far cry from the reported US$30-million ad campaign with which Coca-Cola launched Fruitopia in 1994, but Cronin says his low-budget approach is preferable. "Frankly, I don't want an advertising campaign," he says. "That would take away the thrill of discovery. We want to get in through the back door as much as possible."
Cronin may not be quite as frank as he suggests. Clearly Canadian has $10 million in cash and available credit, and is in no position to pay for the kind of marketing blitzkrieg that its bigger rivals can bankroll. Still, Orbitz has been picked up by such big-name chains as 7-Eleven Food Stores, and Clearly Canadian's chief operating officer, Glen Foreman, says the drink is selling four times faster than budgeted. He won't release any sales figures, but says he expects to move more than 500,000 cases in the last six months of 1996, worth about US$3.5 million to the company. Orbitz's sales aren't going to scare any of the big boys in the beverage business, but they do constitute a nice addition to Clearly Canadian's depleted revenue stream. After better than expected trial results in 25 states, Orbitz is rolling out across the US and Canada.
Will its sales hold up in the notoriously faddish market for alternative beverages? Mason argues they will. He says consumers-most of them kids or teenagers-don't mind paying up to US$1.50 for a bottle of Orbitz because they see it as a treat rather than a refreshment. Its real competition, Mason says, is the $2 milkshake, not the 750 can of pop.
Retailers may not be entirely convinced by that line of reasoning, but they love the way Orbitz greases the palms of everyone who handles it. Clearly Canadian sells a case of 12 bottles for US$7. The wholesaler charges the retailer about US$10, and consumers end up paying about US$15 a case.
To take full advantage of the mouthwatering margins, Clearly Canadian has overhauled its dysfunctional distribution system. Previously, it relied upon the efforts of about 300 independent distributors across North America. The system worked well when sparkling water led the alternative-beverage segment, and Clearly Canadian was clearly No. 1. But when newer, hotter products hit the market, the distributors went where the margins were better.
To force attention back on his own product, Mason has shelled out about $10 million to buy back distribution licences for regions containing about 70% of the North American population. He has replaced the seven outside distribution agencies with 21 employees in strategic markets. Their one and only job? To push Clearly Canadian onto retail shelves across the continent. Their first task is Orbitz, but the bigger plan is to give them more and more beverages to sell under the Clearly Canadian banner.
"We have 350 beverage companies on the radar," says Richard Groome, whose company, Groome Capital Advisory, has been retained by Clearly Canadian to scout acquisition targets. His first recommendation turned out to be close to home-Sun-Rype Products Ltd. of Kelowna, BC. The merger offered obvious synergies in production. In one swoop it would have doubled Clearly Canadian's revenue; it would also have given Mason's company the use of SunRype's underutilized bottling facility in Kelowna. Instead of trucking water from a site in Vernon, BC, to a bottling plant in Everett, Wash., for shipments to the Pacific Northwest and Asia, Clearly Canadian could centralize its production in Kelowna, just 45 minutes from its well site.
Culturally, however, the fit was not so comfy. Sun-Rype is a modestly profitable company, controlled by the heavily subsidized British Columbia Fruit Growers' Association, which for 50 years has eked out modest profits making apple juice. In recent years the company introduced a range of other fruit juices, as well as fruit and granola snacks, and attempted to export its goods beyond the confines of its Western Canadian marketplace. But it's nothing like the slick, continent-spanning upstart, Clearly Canadian.
This summer saw Mason and Foreman in shirtsleeves, touring the Okanagan valley under 35degC sunshine. The goal: to convince the fruit growers who control Sun-Rype to accept Clearly Canadian's takeover offer of $1.61 and half a Clearly
Canadian share per share of Sun-Rype, or a one-for-one share swap. The affair turned into a clash of values and management styles, as Clearly Canadian sent out circulars, hosted public receptions and cosied up to the community press in small BC towns such as Winfield and Oliver. By the final deadline for the bid, however, Sun-Rype's team of investment bankers, securities lawyers and PR flacks prevailed over Clearly Canadian's, and the acquisitor was left with a lame-duck 14.4% share of the juicemaker.
"It would have immediately made Clearly Canadian into a widely diversified company with long-proven brands," Mason says of the missed opportunity. While Sun-Rype enjoys strong supermarket sales, Mason is convinced Clearly Canadian could have expanded the juicemaker's share of the single-serving, convenience-store market. He also regrets missing out on Sun-Rype's fruit-snack sideline, which he thinks would have made a high-margin sales vehicle. "We think we could have dramatically increased their sales."
As the failed coup demonstrates, it is Mason's reputation, as much as anything else, that stands between Clearly Canadian and a revival of its stock price. SunRype's board cited three reasons for rejecting Clearly Canadian's takeover bid: the price was too low; a belief that there were no synergies to be had; and what it called the "history" of Clearly Canadian. Sun-Rype's growers come from a cooperative tradition and didn't like the look of Mason and his team, says Jean Cormier, a communications consultant who advised Sun-Rype during the takeover wrangling. "They don't take a shine to somebody coming in from Howe Street whose basic skill is... to promote and ride a stock from $2 to $30."
With Clearly Canadian's share price still languishing in the $4 range, many investors still have to be convinced that a turnaround is imminent. Mason admits as much when he says, "The greatest difficulty in regaining the company's credibility is to demonstrate-with real numbers-that the company has in fact been able not only to stop its slide but begin to grow again." On that point, at least, everyone can agree with Mason.
HALF-FULL OR HALF-EMPTY?
"This will not continue to be the incredible shrinking company," vows CEO
Douglas Mason
Copyright CB Media Ltd Dec 1996 |
