Tuesday, March 20

Shedding light on Budvar (part 1); Excessive marketing costs?

 

Having previously stated my concerns about the apparent politically driven attack on Budejovicky Budvar, I submitted two Freedom of Information requests to the Ministry of Agriculture on the matter. To the Ministry's credit, it complied fully with the FOI law (Law 106). Their answers however are not reassuring about Minister Bendl's actions.

Nevertheless, there was a positive development this week; Prime Minister Necas announced that "political" appointees to the supervisory board of Budvar, including JUDr Tomas Jindra, will be removed. This is a welcome move. Politicians and their ‘consultants' have no place on a supervisory board of a company which exists in a competitive market. However, the "audit" of Budvar continues, and we should all continue to take an interest in developments. I have a series of observations to offer, based on my FOI questions and discussions with international experts in the beer market...

The first question is detailed here. I supposed that Minister Bendl must have received a detailed financial report which showed very heavy marketing expenditures. You will recall that several times he used aggressive language, likely to inflame the opinion of the ordinary man in the pub, who generally thinks advertising is a pernicious waste of money. "Budvar is a state within a state" proclaimed Bendl several times, backing up this bombastic phrase with the "evidence": "it spends 400m CZK a year on marketing and PR" (live on "OVM") and alternatively in print "1billion CZK in three years".

Since I had already established that Budvar only spent 30m on advertising, I was curious to know about the other 370mCZK. The answer, amazingly, is that Bendl actually had no more information than you or I. The Ministry's answer was that he had two sources:

1. The financial report of Budvar on the commercial register.
2. Press reports, particularly this interview with Mr Bocek in HN.

And that's all. And the problem is, these two sources do not clarify at all the size of Budvar's marketing budget. In the case of the financial report, there is no detail whatsoever, only an overall figure for ‘services'. In the case of Mr Bocek's interview he, quite rightly resists giving such a figure to the newspaper. It is after all information the competitors would like to have. When pressed, he says that "our expenditure on sales support is 18% of sales". Earlier in the interview Mr Bocek reveals the sales figure for the first eight months; so presumably Mr Bendl made a pro rata assumption about the final year sales figure, and calculated 18% of that, which would produce his "400 mil". He then apparently decided that this figure is too high, and launched his attack.

I suppose I should not be surprised, but is this really the intellectual level at which Czech ministers routinely operate?. For a start ‘sales support' is a vague phrase. It can mean different things in different companies, which is doubtless why Mr Bocek used the phrase. It is certainly more than just ‘marketing and PR'. The second question is whether 18% is in any way remarkable. Fortunately it is very easy to find benchmarks. The latest financial report from Carlsberg is ideal. It helpfully breaks out ‘marketing and sales costs'. Taken together, what are they as a % of sales revenues? Guess what...18%. But perhaps Carlsberg too wastes money? Hardly. Overall profit for 2011 was 15.1%. More on profit in the next section.

If  we are to take Mr Bendl at face value, and believe that he is really concerned about possible waste at a state-owned company, we should wonder why did not use the human resources at the ministry, to establish what the real marketing budget is, compare advertising costs with rivals using easily obtained data , and compare with international company benchmarks to determine whether such figures seemed high or not. If I can do all that in a couple of hours, his Ministry could easily do so. It is an example of how permanent staff at a ministry should provide support for a Minister. Mr Bendl chose not use this support, and yet saw fit to criticise Budvar's management in aggressive and emotive terms. At the very least, I supposed that Mr Bendl knew something we didn't. In fact there is no reason at all to be concerned about the marketing budget. The implication is that Mr Bendl was simply looking for an excuse to criticise the Budvar management. Which leaves us with the question...what exactly is Mr Bendl seeking to do, in our name, by sending in the ‘auditors'?

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