Time was when Les Montgomery, the chief executive of Highland Spring since 2008, talked about the financial impact of the weather in much the same way that a farmer discusses crop yields. A poor summer always pushes down production, or in the case of Highland Spring, it dampens demand, just as soaring temperatures will push sales skywards.
But all of that is changing as the UK’s leading producer of naturally-sourced H2O rides a wave that has made bottled water the fastest growing drinks market in the world. Highland Spring has been pushing full steam ahead to keep up with the rising demand for healthy hydration, which has given Mother Nature a lesser role in the company’s narrative.
“This is the first year in our history that we have been at full production since the start of January, and that will be the case through to the end of 2016,” Montgomery says of the company, which was set up by the Dubai-based Al Tajir family in 1979.
“The impact of seasonality has definitely reduced. As more people get into the habit of drinking healthy, that spreads across the year. It is not just about the days of the 23 degree heat any more.”
Currently in rude health, the global bottled water market was valued at $157 billion (£126.2bn) in 2013, and is expected to reach $280bn by 2020. Consumption in the UK grew by 8.2 per cent last year, equating to a retail value of more than £2.5bn.
This is the backdrop against which Highland Spring last week reported annual sales of more than £100 million for the second year running, as well as a near 50 per cent rise in operating profit to £5m. The value of turnover rose by 3 per cent to a record £103m in 2015, and more recently, the company marked another major milestone when it hit its long-term volume turnover target of 500 million litres annually.
The group’s headquarters in Blackford draws water from the Ochil Hills in Perthshire, and it has four further bottling plants in Scotland and Wales. They collectively employ more than 470 people full-time, plus a further 80 temporary staff brought in to handle the inevitable – though now less pronounced – rise in demand through the summer.
The portfolio includes Highland Spring, Speyside Glenlivet, Hydr8 and a range of private-label flavoured and unflavoured waters sold under supermarkets’ own branding.
To help meet demand, Highland Spring completed the installation of a new production line at Blackford earlier this year, which is being followed up by a factory extension. The entire project represents an investment of £20m which will nearly double capacity at the site to 600 million litres annually.
A series of smaller projects is planned in the coming 12 months with a total value of another £10m, all geared towards Montgomery’s next target: turning out 750 million litres of bottled water by 2020. Lifting production by another 50 per cent is ambitious, he admits, but certainly within the realms of possibility.
“By the end of the decade, if growth continues the way it has been, the UK will be a 4-billion-litre market, compared with about 2.7 billion last year,” Montgomery says.
“There is also some very interesting research which shows that 70 per cent of us drink bottled water, but only one in four drink it more than once a week. When you consider that, there is a huge opportunity out there.”
With so much up for grabs, the heavyweights of the global soft drinks industry are of course looking to dominate the growing water category. Highland Spring is considered British-owned because Mahdi Al-Tajir has an estate in Perthshire, and every other major UK water brand is owned from abroad: Evian and Volvic are part of French conglomerate Danone, while Buxton is part of Swiss-based Nestlé’s portfolio.
Born, raised and still living in Falkirk, Montgomery has been with Highland Spring from its early days.
He left Woodlands High School at the age of 16 to take up a trainee position with accountants Macfarlane Gray back when it was a tiny firm with a sole office in Stirling. He continued his training while working, and although he enjoyed the discipline of accounting, by 1985 he had decided that he didn’t want to be an auditor.
A friend who was employed at Highland Spring recommended it as a “great company” to work for, so he successfully applied for a post in the financial department. At that time, the company’s head count hovered around 60, with annual sales of £3.2m.
One of just four on the finance team, Montgomery was given a mix of work during his initial period as an assistant accountant. His career progressed along with the company’s growth, leading to his appointment as finance director in 1993, and then the chief executive’s post in 2008.
The following year, he went on to spearhead the acquisitions of Speyside Glenlivet and the water division of Greencore Group.
Employing 13 people at the time, bottling water at source near Ballindalloch in Moray, Speyside Glenlivet was acquired for an undisclosed sum after a brief period in administration. It supplies the top end of the market, including fine dining restaurants in the UK and overseas.
The £17.5m Greencore deal catapulted Highland Spring into top position as the UK’s largest bottled water supplier. At that time it employed 124 people at Campsie Spring on the outskirts of Glasgow in Lennoxtown, as well as Blaen Twyni in Wales, making own-label bottled water for a range of multiple grocers and food service clients.
Highland Spring has held on to that position ever since by capitalising on key sponsorship deals such as its long-standing association with tennis. The company was an early sponsor of Andy Murray, and currently partners with the Lawn Tennis Association.
A fresh digital and marketing push is also being developed following the appointment earlier this year of Edinburgh-based Whitespace to lead a “brand rejuvenation journey”. The appointment is an extension of Whitespace’s previous digital marketing with Highland Spring.
“We are coming up with lots of plans for the brands for next year, when the new production line comes on,” Montgomery explains.
Forthcoming capital investments include plans for a rail yard expansion at the edge of Blackford to ship product into England, which accounts for more than three-quarters of Highland Spring’s annual sales. Though this should ease distribution as the market continues to expand, the main impact will be to cut down on CO2 emissions.
“It is more about cutting down on road miles,” says Montgomery, who hopes work will get under way within the next 18 months. Cost-wise it probably doesn’t stack up at the top of the list of things you would want to do, but it is the right thing to do.”
He sees no shift in the trend that has propelled growth in bottled water to outstrip that of fizzy drinks for the past several years, but the pace has “marginally” slowed at Highland Spring, from roughly 11 per cent two years ago to about 9 per cent currently. The company is therefore looking at ways to expand into what Montgomery describes as the “wholesome beverage” market.
As demand for “plain” bottled water has continued to rise, new iterations have also begun to flourish. The coconut water market is now worth more than £100m in the UK, with others products such as birch and maple water gaining footholds. Many more promise an array of health benefits based on natural added ingredients, or by virtue of their source or how they’ve been treated.
Highland Spring distributes Go Coco and Go Birch on behalf of Glasgow-based Freedom Brands, which was co-founded in 2011 by Tracey Hogarth and Ross Currie. Montgomery says coconut water is still quite small compared to the market for mainstream water, but the segment is following the rapid growth trajectory already seen in the US.
“Our bottled water business is absolutely core, but our ambition is to be in the broader wholesome beverage market,” he says. “We accept that at some point the growth in our main market is going to slow down, and we need to be in a position where we can move into other areas and be part of the bigger wholesome drinks category.”