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From the ashes

Written by Hannah Prevett, Natalie Seery on Wednesday, 01 May 2013. Posted in Big business, Interviews

The business empire Lord Karan Bilimoria had carefully built stood on the verge of collapse. But thanks to his steely resolve, uncompromising morals and a joint venture with one of the world’s biggest brewing companies, Cobra Beer is stronger than ever

From the ashes

With his crisp upper class accent, it is easy to forget Lord Karan Bilimoria wasn’t born in Britain. At first, at least. For, once the entrepreneur begins speaking about his childhood, it becomes immediately apparent how his Indian heritage and links with successful forebears have informed his entrepreneurial career at every step of the way.

Born in Hyderabad, Bilimoria was the son of an army general and raised as part of the Parsi community – Indians of Persian origin whose religion is Zoroastrianism. “It’s a small but very successful community,” says Bilimoria, proudly. “Parsis have always been very successful in every field, whether it’s business, or politics or law.”

Indeed, Bilimoria’s own family were leaders across multiple spheres. His father, initially commissioned to the Gurkha regiment, retired as Commander in Chief of the Central Indian army. His grandfather was one of the first Indians to be commissioned at Sandhurst, and he retired as a brigadier. 

Meanwhile, his mother’s father was a successful businessman in South India. Bilimoria’s maternal great-grandfather was an entrepreneur, later becoming a member of the Upper House of India, which is the equivalent of the House of Lords in the UK. “Four generations later we must be the only Indian family that’s had a member of both the houses in both countries,” he says, proudly.

Being born into a high-achieving family meant Bilimoria was ambitious from a young age. “My family’s had a huge influence on me,” he says. It’s fair to say his childhood was fairly fragmented: his father’s military career meant the family regularly moved and Bilimoria junior attended seven different schools. The one constant was a family home in Hyderabad to which the family would return when they couldn’t join their father.

“It was something we just accepted because my father was in the army. If he was fighting a war or was stationed on the Chinese border in the mountains, or somewhere else the family couldn’t accompany him, we would go back to Hyderabad. My mother’s family home was our base. It was a lovely big, grand old family house – wonderful to visit as a child.”

Yet, more often than not, much to their delight, Bilimoria and his younger brother, would travel with their father. “We went to the most amazing, adventurous places. For example, my father commanded a desert brigade when he was a brigadier. That was fantastic going from boarding schools to camping out in the desert during holidays. You know that romantic India that people dream of? I lived it.”

Certainly, Bilimoria talks about his childhood with a good deal of affection. He paints an idyllic picture of camping, horse riding and playing tennis. He speaks about learning to box at the age of eight. And he was precocious in his studies too, attending university at just 16. At the age of 19, with a degree in commerce from Osmania University under his belt, he arrived in Blighty to undertake training to become a chartered accountant. 

As he studied, he got field experience with the firm that was to become Ernst & Young. “I used to work in the City and go out on audits,” he recalls. “One of my clients was Gerald Ronson, the entrepreneur who founded property company Heron International. That was quite the eye-opener.”

Yet it wasn’t enough to persuade Bilimoria that his future lay in auditing. “I knew halfway through my accounting studies that, while it was great professional training and business training, I didn’t want to be an accountant for the rest of my life.” His favourite module when studying for his accountancy qualification had been law, so he applied to Cambridge to read it.

For the budding entrepreneur, his time at the esteemed education institution wasn’t about achieving another degree, but enjoying the extracurricular activities that Cambridge had to offer. “I had the most wonderful time at Cambridge,” says Bilimoria. “I decided that I already had a good first degree and I was a qualified chartered accountant so I wanted to experience Cambridge life as fully as I could.”

He certainly kept himself busy: Bilimoria became vice president of the Cambridge Union, played polo and shot for the university, and also led the Cambridge debating team for two years running against Oxford.

Among the melee of sports-playing and general immersing himself in university life, Bilimoria was also quietly pondering his future. The idea of starting his own business appealed greatly. “I think the influence was always there from my great grandfather. I was three years old when he died, so I only had very faint memories of him, but I grew up with stories about how he built his business from scratch – and nearly lost it three times.”

He also thought back to his auditing days with Ernst & Young. As well as working with Gerald Ronson, he’d also audited the accounts of aerospace and motor retail company Marshall Group and remembered being inspired by its founder. 

“When we were auditing the company, we’d arrive at 8 o’clock in the morning and Sir Arthur Marshall’s car was already there. He was 80 years old but he would still come into work every day. He was a great entrepreneur and built a fantastic business,” reflects Bilimoria.

These thoughts coincided with the student spotting a gap in the beer market. “I’ve always loved beer from the time I was allowed to drink it,” he says. “When I came to this country, I tried the famous beer brands and I really didn’t like a lot of them. I found the lagers fizzy and too difficult to drink. A friend introduced me to ales, which I loved, but I found them very difficult to drink with food.”

At this time, Bilimoria’s cooking skills weren’t entirely up to scratch, so he was dining in Indian restaurants at least twice a week. “In restaurants the most popular drink was lager beer,” he says. “I tried to drink ale, but it was terrible to drink with food, especially Indian food. I started thinking about other ale drinkers. They’d come to Indian restaurants and have to drink fizzy lager, which they hate. Meanwhile, an alternative to lager would mean the restaurant owner would sell more food and drink, as lager bloats you up and makes it difficult to eat and drink.”

“I thought the answer would be to create a beer that sits between a lager and an ale. It would have the refreshing qualities of lager and the smoothness of an ale. It would be really drinkable, but also go very well with food – particularly Indian food.”

For unlike lots of young people who shake off links to their heritage as soon as they discover booze and the opposite sex, Bilimoria’s link to his Indian roots had remained strong. While studying and working for E&Y he’d spent two months each year in the country of his birth, and while at Cambridge he’d also return home for the holidays.

“I felt very at home here in England. My family had been educated here for three generations, so I was totally at home here. But I was also totally at home in India. I asked myself how I could bring the two countries together and one way of doing it was through business.”

But the task at hand was mammoth. Without any experience in the beer market, Bilimoria would need to create a new beer, produce it in India and then export to the UK. The aspiring entrepreneur thought it wise to garner some experience in other more accessible industries first. At 26, he set up his business with partner Arjun Reddy and their first foray into the import/export market was importing polo sticks from India.  

“After the Falklands War, Argentinian products were not allowed to be brought into Britain. Argentinian polo sticks are really good, but suddenly they weren’t allowed in. This meant the only competition was British polo sticks. Yet my polo sticks imported from India were slightly different and slightly better. I sold them to Lilywhites, I sold them to Harrods. I was in business.”

The post-conflict ban of Argentinian polo sticks wasn’t the only way then-PM Margaret Thatcher’s policies affected Bilimoria’s entrepreneurial endeavours. “One of the influences for me to start my business was the way Britain had changed. Later on, I was lucky to get to know Margaret and her husband, Dennis, but looking back on it, I admire her influence and what she did for this country in terms of encouraging entrepreneurship and enterprise. I started Cobra when she was prime minister. I always say entrepreneurs were Thatcher’s children.”

But not everything Bilimoria and Reddy attempted to flog was as much of a hit as the polo sticks. “We started importing other products from India. We sold pearls, towels, high fashion items to boutiques in Knightsbridge. You learn quickly to source products, do quick research and try things. But also, you have to know when you hit a dead end. I believe perseverance is fine as long as you know you’re on to a winner.”

Throughout the trials and tribulations of their early export business, the two entrepreneurs regularly received counsel from Reddy’s uncle, known to the boys as Uncle Keshow. “Here was a man who’d worked around the world, he’d travelled around the world and was an accomplished businessman, but who’d also lost both of his legs through diabetes. Yet he never complained,” says Bilimoria. “You’d walk into his study and he’d be there sat behind his desk and he’d give you a big smile and say, ‘Right boys, how are you?’”

It was through Uncle Keshow that Bilimoria and Reddy were introduced to Pal’s Distilleries in India. “Though they were the largest independent brewer in India, they had never exported beer so were very interested. As luck would have it, they didn’t have a brand that was suitable for us. Pals was a name for dog food here. So they said, ‘Why don’t you come to India?’”

His first meeting with the company’s head honchos was unnerving. “They were sat there in a semi-circle: the MD, chief accountant, chief engineer, company secretary, head brewer, marketing director and so on. They were all sat around this 27-year-old, firing questions. ‘How much money do you have? What expertise do you have?’”

The answer to both questions was zero. Yet the brewery decided to take a chance on the entrepreneur. “If you have full faith, and passion and confidence and belief in your idea, it gives people faith, confidence and belief in you; they’ll trust you and give you a chance. At the end of that three months, I was there when the first container was shipped and the owner of the brewery lent me the money to pay him for his own beer.”

Now the duo had their product, it was a question of getting it in front of consumers. It was pointless going straight to the supermarkets, because, in the unlikely event that they’d have stocked it, persuading customers to buy it without spending a small fortune on advertising was nigh on impossible. Bilimoria’s strategy instead was to get it on to restaurant tables. 

There were two factors in his favour. Firstly, the fortunes of premium lagers and world lagers were on the up. “It was a high-growth sector,” he says. What’s more, Indian food had really captured the imagination of the British public. “In 1980, there were fewer than 3,000 Indian restaurants in the UK. When we started Cobra, there were over 6,000 – in a decade it had doubled.”

One of the beer’s unique selling points was that it was served in 660ml bottles – double the size of the bottles people in the UK were accustomed to. This meant patrons of Indian restaurants would be able to share the beverage in the same way that they would share the food. 

By 1996, Cobra had really taken off. Reddy had left the business a year earlier to pursue other business interests (the parting was entirely amicable, says Bilimoria). The brand was growing healthily, with a compound annual growth rate of 40% and by 2006 was making revenues of an estimated £180m a year. 

It was, therefore, perhaps no surprise that it was targeted by a US hedge fund. “The hedge fund said, ‘Look, the brand’s really taking off, but you need to go it in a bigger way. Here is £33m, now you can build a better team with a professional chief executive and take the brand to the next level’.”

This was the beginning of what was nearly the end. The hedge fund money was staggered over 2006 and 2007, during which time efforts to recruit a new CEO failed to bear fruit. Meanwhile, a minority stake sale to Diageo fell through, and just as new funds were needed, Lehmans went under and plans for a joint venture with Molson Coors were scuppered. 

Bilimoria was under enormous pressure to sell, but a buyer couldn’t be found – much to the displeasure of the hedge fund investors. “At the same time as Lehmans went bust, the value of the funds held by the hedge fund dropped from $26bn to $350m and they were pulling in all their investments.”

It is little wonder that Bilimoria blames the hedge fund for the turn in the company’s fortunes. He attributes the decision to take the firm’s money as being one of his biggest mistakes. “Cash was now not only king: it was emperor,” he says. 

After an attempt to secure a CVA was ruined by a disgruntled supplier, the only option for Molson Coors and Cobra to save the business was a controversial pre-pack administration. Pre-packs have been in the news over recent years as unscrupulous business owners use them to jettison loss-making parts of their businesses and restart, often with the same team and premises, as soon as the next day. 

“A pre-pack administration is meant to be the least worst option,” says Bilimoria. “It’s true that pre-packs have a bad reputation. But if you use it when it’s the last option and you do it properly, which is what we did, they can work.”

At that stage, the company could have wiped out its shareholders, creditors and employees, but instead Bilimoria pledged to repay every penny he owed. His loyalty was, and remains, unwavering – even in the face of potential ruin. “I managed to look after everybody in a situation where normally lots of people lose everything.”

Nonetheless, Bilimoria accepts it was a hellish period. “Particularly through the tough times, what gives you the strength to get through it is your family.” His wife, Heather, whom he met a year after he started the business has been at his side through thick and thin, says Bilimoria. “She has stood by me throughout everything. She’s been absolutely amazing, and is a great wife, a great supporter.”

Four years into the joint venture, which saw Molson land a controlling 50.1% stake, all seems to be well. Cobra is now manufactured at Molson’s Burton brewery, the largest in Britain and one of the biggest in Europe. The brand is highly profitable to boot. “I’d always known if we didn’t go for very aggressive growth, we would be able to generate healthy profits. Now we’re in a very strong position to generate high growth, but from a very profitable base. With hindsight, I wish that’s something I’d done earlier and proven the profitability of the brand myself.”

Bilimoria wears his battle scars well. He is incredibly proud of the partnership he’s forged with Molson Coors, one of the world’s largest beer companies. However, despite the business’s size, it still manages to maintain the small-company feel, he says. “When we embarked on the joint venture, what really worked to its advantage was that we both had similar cultures. Because although Molson Coors is a giant multi-billion dollar global enterprise, it is still controlled by both the Coors family and the Molson family. Family values and ethos permeate throughout the entire organisation.”

Although Cobra is much younger, this chimes with the values he tried to instill at the company Bilimoria founded. “The culture I’ve built up in Cobra was one of entrepreneurialism, but also one built on very strong values.”

It’s a culture he continues to nurture through his role at Molson Coors. There is plenty else to keep him busy, too. Father to four children, he travels often with his children – both to India and their mother’s native South Africa. “Britain is their home, this is where they were born but I also want them to be completely at home in the countries of their parents’ origin,” he says.

He laughs that his children have seen him work so hard over the years that they’re entrepreneurs “by osmosis”. But with the ups and inevitable downs of running a business, Bilimoria’s children have undoubtedly watched their father embark on a journey of self-discovery. “The key in all of this is to continue learning. One of my favourite sayings is that good judgement comes from experience, and experience comes from bad judgment.”

“You’re going to make mistakes; everyone makes mistakes. It’s a question of how you learn from them.” 

About the Author

Hannah Prevett

Hannah Prevett

Prevett likes to think she's something of an expert when it comes to small business. Having cut her teeth writing about tech, she latterly moved on to such illustrious titles as Growing Business, Management Today and the Sunday Times to indulge her enthusiasm for entrepreneurship: from P&Ls to private equity and all that's in between, you can't keep this girl away from the heady world of start-ups. 

Back in the day when she had spare time, she would spend it networking, horse riding, drafting and re-drafting ideas for novels, and playing auntie to her niece and three god-children. Those were the days...

Natalie Seery

Natalie Seery

Seery is the keen snapper who paps our cover stars each month. And she’s had plenty of experience, with a portfolio of shots of some of the UK’s hottest music stars as they strut their stuff on stage.

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