Erceg - independent by name and nature

Michael Erceg

For Michael Erceg, Independent Distillers Group was likely more than just a name, it was a personification.

"Independent by name, independent by nature," an industry executive told the Business Herald of the company that amassed Erceg an estimated $620 million fortune.

Founded in Auckland in 1987, Independent transformed the liquor landscape, shattering the country's cosy beer duopoly by going head to head with mammoth brewers Lion Nathan and DB Breweries.

Erceg, 49, and Dutch brewing executive Guus Klaate disappeared eight days ago when the helicopter Erceg was piloting vanished from radar screens 30 minutes after leaving Ardmore Airport. The official search was called off on Thursday, but the private family-funded search continues.

Innovative, relentless and notoriously media shy, Erceg chipped away at the multinationals' stronghold, gaining market share in every segment from discount to premium beer, ready-to-drink or pre-mixed cocktails to spirits. His beverages are now manufactured in three countries and exported to 70.

The son of Croatian migrants, Erceg toiled away on the sidelines, thumbed his nose at government, refused to join industry groups and created a business model where marketing was unnecessary and low prices were paramount.

He held tight control of Independent and it is unclear whether he had a succession plan.

Friend and customer Chris Simkin said he wouldn't comment on succession, but noted that Erceg had a vision for Independent that was shared by a "loyal and dedicated team of employees".

"Very few people left Michael," Simkin said. "If the unforeseen did happen, the team are capable of continuing with Michael's vision."

With a PhD in applied mathematics from the University of California, Erceg was first a university maths lecturer in the US. He returned to New Zealand in the mid-1980s to help run the family's wine business, Pacific Vineyards, after his father became ill.

It's hard to say whether the elder Erceg schooled him on the ins and outs of the liquor industry or whether Erceg had a nose for the business.

He did have his struggles during Independent's early days. Some say the lean times forced him to ask retailers and suppliers to pay him in advance.

Erceg hit his stride with his ready-to-drink products, a big hit with the lucrative 18 to 25-year-old demographic. Erceg apparently saw the success RTDs had had overseas and sought to emulate that in his home market. He began manufacturing the drinks in New Zealand and is credited with blasting the market with them in the 1990s, just as they were becoming popular abroad.

The success of labels like Purple Goanna, Woodstock Bourbon and Cola and Vodka Mudshake propelled Independent's growth, the company's website says.

"He did a bit of a job on the RTD category like Sony did a job on the electronics industry with the Walkman," a brewing industry executive said.

Independent has 65 per cent of New Zealand's RTD market, Lion Nathan has about 22 per cent, with the remainder divided among other players.

His RTDs not only conquered the Kiwi market - Australians, Canadians, Swedes, Chinese and others are gulping down his brands.

Erceg's most recent inroads came in the premium beer category, a segment split between the two big players, and one they didn't want to share with a third.

While the volume of beer consumed by Kiwis has declined steeply in the last decade or so, the choice of beer has increasingly become upmarket, premium brands. This "premiumisation" of the market - the latest industry catch phrase - means Kiwi drinkers are looking for brands with a bit more cachet.

Thanks to Independent, upmarket beers like Carlsberg, which it was licensed to brew, Tuborg, Carling, Kingfisher, Grolsch and others hit local liquor stores, giving beer drinkers not only more choice but at a bargain price too.

The smoking ban in pubs, imposed in December, had the effect of pushing more drinkers to stay home, so the take-home beer segment has become critical to liquor companies' bottom lines, making up 70 per cent of the total beer market. More often than not, this market is won on price.

Erceg could afford to sell his premium brands for less than competitors simply because he used little or no advertising - essentially turning the traditional liquor business model on its head. Erceg did not "build value into his brands" like the big brewers do, a senior industry executive said.

Instead of spending millions on television commercials, sports sponsorships, theme parties and glossy magazine ads, he sold on price and brand recognition. He did commission the odd billboard, took out an ad or two in liquor industry trade magazines, but it is safe to say the company's marketing budget was better spent elsewhere.

"He takes the money that others would spend on marketing and reduces the price to the consumer and tries to give the retailer a better margin," a senior executive said.

Another industry executive said: "He rides on the coat tails of the general category promotion done by the big brewers. The work that DB or Lion does in promoting beer effectively helps him promote his product without having to put any investment into it."

Independent took about 8 per cent of the country's nearly $1 billion wholesale beer market.

Simkin, managing director of the Mill Liquorsave, credits Erceg with keeping private liquor retailers in business by giving them an alternative to the two large brewers.

"He had a band of loyal suppliers and we are one of them. There are a lot of retailers that owe their existence to Michael," Simkin said. The Mill Liquorsave was Independent's largest private retail customer.

With its Australian operations dwarfing those here, Simkin said Erceg knew the company's head office should be Melbourne, but he was a passionate Kiwi so he remained in Papakura. Independent began selling to the Australian market in 1997 and, within four years had production plants in Sydney and Melbourne. By 2002, production began in Britain to service exports to the Northern Hemisphere.

Simkin said Erceg had a 10-year plan to further cement Independent's global reach, while blunting overtures to purchase the company by deep-pocketed global players interested in keeping the number of competitors to a minimum.

Foster's and Diageo are said to be among the company's suitors.

Beer industry veteran Brian Blake, who is also managing director of DB, said he had nothing but admiration for Erceg.

"I admire the guy in the ways he's grown his business. The way he was entrepreneurial and innovative. He kept the other industry players on their toes."

MICHAEL ERCEG

Worth an estimated $620 million.

Has a PhD in applied mathematics from the University of California.

Started Independent Distillers in 1987.

Independent Distillers Group Has 65 per cent market share of the country's RTD market and 8 per cent of beer market.

Sugary concoctions like Purple Goanna, Vodka Cruiser and Woodstock Bourbon and Cola drove company growth.

This was to be Independent's big year as it made inroads into the premium beer market, with labels like Grolsch and Carlsberg.