BULLMAN’S BREWERY CO LTD
The Case Study.
Bullman’s brewery was founded in the 1880s by the Bullman family and is based in the Toxteth area of Liverpool. The company owns two breweries, one in Toxteth and one in St Helens, together with 400 public houses and off-licences situated in Liverpool, Merseyside and Lancashire. The two breweries together produced 190,000 barrels of beer in 2013, although at their peak output in 2010 they turned out 240,000 barrels. Excluding the company’s tenants, some 1500 people are employed at the breweries, in distribution, in administration and as public house managers.
Against the national trend in beer output, the company’s sales declined from 240,000 barrels in 2010 to 215,000 in 2011 before slumping to 185,000 barrels in 2012. At the company’s annual general meeting in January 2014, the blame for the fall in sales on the level of unemployment on Merseyside. In May 2014 a review of the organisation was completed and published as a confidential document entitled ‘A Plan for the Future’, which is reproduced for your consideration below.
Bullmans: The Plan for the Future…
The main problem facing the brewing industry in the 21st century is excess capacity, arising in turn from low demand and falling output. During 2011, total beer production fell by 3.8 per cent and this year it is expected to fall by a further 4.6 per cent. Forecast for 2015 suggest a very modest recovery which will still leave the industry with a good deal of surplus capacity. Most of the large brewery companies have responded to the fall in demand by closing their small, high cost production plants and depots. As a result, the number of jobs in the industry is declining at a rate of 5000 per year. There has also been a marked increase in competition for the free trade to a point where, in some cased, profit margins have been cut to vanishing point. Despite this fall in consumption, lager has continued to increase its share of the total market. Bitter sales have also expanded slightly due to the introduction of new brands of cask conditioned ale.
Industry forecasts suggest that by 2015, lager will account for 40 per cent of the total market, much of this increase will come from sales of canned lager through supermarkets. Bullmans’ position suggests the company is far too committed to static or declining sectors.
The weakness stems from the firm’s failure to develop a good, popular draught lager. The present brand ‘Krumback’ was launched in 2000 and is brewed at St Helens. Despite the fact that is it now sold in 90 per cent of the tied houses, it has failed to compete with other brands. It is thought that a different type of yeast would improve the beer. There has also been a failure to exploit the national trend towards cask conditioned bitter ale. Although it is admitted that Liverpool is traditionally associated with dark, mild beer the company has allowed itself to become over reliant on this sector of the market.
The company is also poorly represented in the free trade, both draught and packaged. Roughly 85 per cent of total output is sold through tied outlets. The problem is that too many of these public houses are situated in declining areas of Liverpool and have no obvious potential for development. Some have, as a result, been neglected and are now in urgent need of structural repairs and internal improvements. Of the company’s total tied estate of 400 outlets, 380 are public houses. Of these, 220 are under direct management and the remainder are let to tenants. Many of the tenanted houses are let at peppercorn rents and are doing relatively little trade – three or four barrels a week being not uncommon. At the other end of the scale some 70 of the 220 managed houses are high volume outlets, selling in excess of 15 barrels a week. Many of the remainder however, are relatively small and could be transferred to tenancy. In the tenanted houses the tie for wines, spirits and soft drinks is not enforced and many tenants buy their supplies on a cash and carry basis.
Some of these problems are seen to be based on weak skills development within the factories which results in poor utilization of the existing machinery. Lack of investment in newer technology and so a failure to move towards all week round (24/7) production, supported by an effective reward strategy. The recruitment of new staff, especially in Toxteth relies on word of mouth and the employment relations in that plant continue to be adversarial, lacking in co-operation, loyalty or engagement. There is a lack of functional flexibility across the company, whilst numerical flexibility is provided by over-reliance on zero-hours contracts. Whilst the St Helens plant was partially modernised in 2008, when a kegging plant was added creating 200 new jobs, and further improvements were made in 2011 in preparation for the start of lager production. The present state of the plan is not adequate to face the future and £15m has been secured through a Bond issue to provide technical improvements at this brewery, exclusive of normal repairs and maintenance. This will created a further 100 jobs. This will only prove financially viable if the plant adopts a 24/7 production system with an associated reward system.
The company operates distribution depots at Warrington and Wigan which in total employ 175 people, including draymen and their mates. Both depots are small but Warrington can be extended, however the Wigan site is situated on a very restricted site which is not easily accessible to heavy vehicles. The future plan is therefore to close the Wigan site (at the cost of 75 jobs – 50 drivers and 25 warehouse staff) and extend the Warrington site (creating 20 new driving jobs).
General plans for the future in various areas include:
1. Develop and market a new lager which can compete with the market leaders.
2. Develop and market a new cask conditioned bitter and/or light mild ale.
3. Penetrate the local take home trade and develop the club trade using these new brands.
4. Withdraw from the tied estate.
1. Closure of the Toxteth brewery and concentrate production at the newly developed St Helens site. This would mean making All workers at Toxteth redundant with a possibility of 80 moving to St Helens if they have, or can quickly obtain the required skills set.
2. Re-locate the company’s head office at the remaining site, and evaluate the office working systems which currently, are based upon traditional 9-5 contracts with clear demarcation between clerical and administrative tasks.
3. Rationalise the distribution arrangements so that only one depot is left operating.
5. Such steps – redundancy, flexibility, contract re-design will reduce the labour force by about 7 – 800, and improve productivity. There will be a saving of nearly £13 million, excluding the cost of redundancy and investment costs.
1. It is envisaged that the planned investment will cost £15-16 million over a two year period, although this will be partly offset by capital receipts from the sale of non-viable properties.
2. It would, however be unrealistic to anticipate any short term improvement in profit margins. Cost savings will have to be passed on to the company’s workforce in terms of higher levels of productivity. The Bond will mean that the company’s liquidity will continue to be squeezed.
Human Resources Strategy
Until recently, the company has not had a Human Resources strategy as such. The former family management fought a long battle against trade unionism, and despite industry norms have maintained a non-union status. Unite the Union, who have small levels of membership across the work force have attempted to secure bargaining rights but to date have been rebuffed. As a result, the earnings of manual workers, and white collar staff were significantly below the average for the industry, and only marginally above the ‘living wage’. Most employees tolerated this adverse differential because of the job security offered. However, after the initial rumours and talk of closures and redundancies many employees have joined Unite and are supporting a more assertive stance regarding pay and conditions.
The former management made extensive use of incentive schemes, all of which are now outdated, inefficient and open to abuse. Overtime is out of control, particularly in distribution where it regularly accounts for 30 per cent of gross earnings, this situation has arisen partly because basic wages are so poor that employees need the opportunity to supplement their earnings. There are no work measurement techniques in use, or the utilisation of any HRM initiatives, contracts are standard and working hours set. The personnel function has become more important since 2008 but is still based upon a fire fighting approach for line managers. A recently appointed personnel manager is concerned at the lack of formal policies and procedures in place.
NB: All characters and organisations are fictitious any likeness to any person or organisation is purely accidental and coincidental.
A PLAN FOR THE FUTURE.
As the newly appointed HR Director you must devise a Human Resources strategy which will help it to achieve the declared objectives. HR Management will have to take steps to:
1. Communicate a clear set of plans to the workforce, notably in relation to closures and workforce reductions. This should enable the organisation to introduce change with agreement and support from the workforce where possible. The company note that disruptive action and resistance will prejudice any attempts to increase market share.
2. Take steps to improve productivity and reduce unit costs. Changes will need to be made in working processes with the introduction of new technology. Further you will need to re-assess the reward structures/systems. These could include the introduction of a job evaluated pay structure as a matter of priority.
3. Identify a realistic timeframe and plan for skills development and devise a scheme to identify skilled workers from Toxteth who might be suitable to transfer to St Helens.
4. Identify and outline the implementation of policies to resist trade union involvement.
5. Identify any others steps that can feasibly be taken to improve employees’ motivation, engagement and performance going forwards.
Write an HR Strategy document for presentation to the Managing Director (3000 words) which acknowledges issues 1-5 above and offers realistic solutions in each area. The aim should be to develop practical and viable HR solutions for this business given the challenges it faces, so you must consider what HR can do which is realistic to move the situation forward.