With news yesterday that Charlies Group Ltd [CHA.NZX] had expanded its presence into Australia by getting their product on 750 Coles supermarket shelves, Charlies PR representatives contacted me and asked if I wanted to put some questions to group CEO Stefan Lepionka to flesh out what is happening over the ditch and with the company in general, so I put some questions to him via email last night and got them back earlier on today.
Charlies has long been a straggler in terms of profit since its backdoor listing in 2005 but its most recent result finally showed a profit for the full year to June 2010. The Australian expansion was well planned and a major coup for the company and should help establish its presence there, where it currently lacks broad brand awareness and scale.
The CHA share price leaped by more than 45% yesterday on the news.
Enough about what I think, lets see what Stefan has to say.
The Q & A
Share Investor - How much revenue and profit do you expect to gain from the deal with Coles to move your brands into 750 of their Supermarkets in the 2011 year?
Stefan Lepionka – We believe it has the potential to double the size of Charlie’s Group Australia in sales. Last year we achieved $7m however we do not go live till 1st Nov which is 5 months into our new financial year. This ranging has now opened the brand to the second largest retailer of a $1 billion dollar juice category.
SI - How hard was it to get your product on Coles shelves considering the competitive nature for space in Supermarkets there?
SL – Nothing’s easy in business however as a business we strive for having a leading edge in our offer vs. our competitors and this was picked up by the buyers in Coles. They set out to do a diligent trial – 37 stores - and yesterday’s announcement is proof of the success the trial has achieved.
SI - Are you expecting deals of s similar size with Coles competitors now that you have your foot in the door of this giant retailer?
SL – We are very focused in trying to build further distribution deals not only in Australia but internationally. We recently announced a significant distribution win in South Korea for our Phoenix Organic brand with a chain called Caffe Bene which has 300 café outlets and we have a number of irons in fires as we continue our strategy of taking our brands to the world.
SI - Did you have to drop your profit margins by much to secure such a deal?
SL - We don’t reveal commercial information that could be useful to competitors but what I can say is the value of the deal or otherwise will be revealed at our half year announcement late Jan 2011.
SI - How much brand awareness is there for the Charlies name and its products in Australia?
SL - We have been in the Australian market specializing in the HoReCa channel - Hotels, Restaurants and Cafes. In the food and beverage world building brands first in this channel is imperative to building brand awareness and future success. To date we have been very successful in HoReCa and our brands can be bought by some of the leading and trendiest HoReCa outlets. This was also a big factor in helping us win Coles.
SI - Is there much competition in the premium end of the market in Australia where you operate?
SL - There is no shortage of competition in any food and beverage category. The key is to have a significant point of difference vs. your competitors which the Charlie’s and Phoenix Organics brands have.
SI - What kind of advertising are you using for brand awareness in Australia?
SL - Below the ground tactics will be used which include a business to consumer approach through social media and sampling in the cheeky Charlie’s way.
SI - On Charlies Group in general. When will the company start paying a dividend?
SL - This was a consideration after last year’s financial year however the directors see a lot more growth to be had so our profits at this stage are being committed to investing in growth and building an even larger business in the short to medium term.
SI - Are you looking at increased profits for the 2011 full year?
SL - Of course we’d love to announce increased profits but let’s just wait and see. As I say, at this stage we are investing for sustainable growth as per our strategy.
SI - Has the recession been tough on the company over the last 2 years, how have you managed costs and debt etc?
SL - Recession has been challenging for all and last year’s result is the outcome of taking action to manage the business in a different environment. We have survived and even prospered through this period.
SI - Will we see Charlies expand into other countries?
SL - Yes and we are currently in 14 countries.
SI - What is the 5 year outlook for your company in terms of sales and profit?
SL – To keep growing sustainably.
About Charlie’s - From Charlies PR
Charlie’s Group Limited is a New Zealand owned company listed on the New Zealand Stock Exchange and operating principally in the Australasian market. The company manufactures and markets a range of ‘not from concentrate’ fruit juices as well as smoothies and organic beverages. Principal brands are Charlie’s and Phoenix Organics. The business was established by friends Stefan Lepionka (CEO), Marc Ellis (director) and Simon Neal (distribution manager) in 1999 and floated on the New Zealand Stock Exchange in July 2005. Charlie’s operates in New Zealand and Australia and exports to territories in Asia, the Pacific, the Middle East and the Indian sub-continent.
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