The Big Interview: Les Montgomery, chief executive of Highland Spring
A focus on “healthy hydration” is one of the messages Highland Spring’s chief executive Les Montgomery wishes to push, with the company this year celebrating its 40th anniversary.
The Perthshire-headquartered company, which sources water from the Ochil Hills, now stands at the top of the podium as the biggest producer and supplier of natural source water in the UK. It boasts some 500 staff, is this year set to bottle 560 million litres, and Montgomery doesn’t foresee any drying up of the market for the foreseeable future.
Highland Spring – which is stocked by the likes of Gleneagles Hotel and British Airways – was established by the Al-Tajir family in 1979 and remains in its ownership (as does the Blackford Estate).
Montgomery arrived in 1985, having realised that his role at a small accountancy firm wasn’t the best fit for him. He joined the small finance team at the nascent water firm, which was then turning over £3.2 million and growing in tandem with an emerging market.
“It was exciting because it was new,” says Montgomery. “I’d seen bottled water around because I’d been on holiday abroad and whatnot – but it wasn’t really something that was known about or thought about in Scotland.”
Like many others, to hydrate he would use a “ginger bottle full of water, that’s how it was – and then suddenly this category was becoming quite a reasonable player in the market and the growth was tremendous”.
Indeed, expansion reached 50 per cent in some years as mineral water made its way into the mainstream. A report published in March 2019 by food and drink consultancy Zenith Global found that water drinks consumption in the UK last year grew by more than 7 per cent to 4.2 billion litres or £3.3bn at retail prices.
But when Montgomery arrived at Highland Spring it was leaking capital (“every single lorry, really, that was going out the door we were losing money on”), and the group took external advice.
Consequently, 1985 was the last year it made a loss. The turnaround came about “because we realised the value of our brand” and knew it needed to focus on being premium.
This saw the replacement of a “tacky tartan Bay City Rollers-type label” with a subtler purple version, looking at positioning the brand and product appropriately and rethinking its distribution – with profits reinvested in the business.
Montgomery was made finance director in 1993, able to take a hands-on approach across the business, and the “milestone” signing-up of a major retailer for an own-label contract brought about investment in operations and an adjustment of its shift structure.
He became the group’s fourth chief executive in 2008. “The first guy set the business up, the second guy moved us to profit, and the third guy focused and helped build the Highland Spring brand.” And when speaking to the company owner – Montgomery describes Highland Spring as a “family business with corporate ambition” – the Scot was simply told that the aim was to have a “big company”.
Montgomery singled out targets such as doubling turnover to £100m, and being the UK’s leader in its field. “If we’re the biggest and we act like the biggest and we’re professional then [we can] make sure we’re there and we’re not getting squeezed out by the big guys,” he says of the ethos at the time.
The chief executive was also given a remit to hit the acquisition trail, snapping up the Speyside Glenlivet premium water business in 2009.
But it was the £17.5m purchase of the bottled water arm of convenience food manufacturer Greencore Group that was a real game-changer. That was “the big thing that got us noticed by the industry”, says Montgomery.
Efforts are still in hand to drive the firm forward, and it invested more than £20m in increasing bottling capacity in 2016 and 2017, for example, to meet demand, enabling the installation of two production lines at its Blackford facility. The new factory was opened by the Queen in July 2017.
The business is set to start transporting bottles out of Blackford by train, which will boost its green credentials.
This comes as plastic bottles find themselves in the spotlight over their environmental impact.
Montgomery says people buy bottled water “for a reason”, including taste, convenience and consistency, but the firm is also keen to “show leadership” in the discussion around plastic and the environment.
“We’re confident that at this time plastic is the best material for our products… but it has to be treated with respect,” he adds, with the firm working with the Scottish Government to promote the benefits of recycling, having been “heavily” involved in talks around the deposit return scheme. In May, Scotland became the first area in the UK to announce such a scheme, which aims to capture 90 per cent of suitable containers for recycling within three years. This will entail a deposit of 20p.
Montgomery says that the trend for consumers favouring reusable bottles that they can fill up at an increasing range of public places poses no threat to the company. “Making it as easy as possible for people to get water is the right thing to do, so we’re great supporters of that.”
Highland Spring in January said its “eco” bottle made from 100 per cent recycled and recyclable plastic was becoming a permanent part of its range after a “hugely” successful trial. “By the end of the year we should have at least 25 per cent recycled materials in all of our products,” says Montgomery, with an aim of 50 per cent by 2022.
It costs more to use recycled plastic, states Montgomery. “However, the right thing to do is to be using materials again and again where possible.” The firm has also said it “remains focused on meeting the needs of a truly circular plastics economy”.
The bottled water firm saw revenues up by a tenth in 2017 to exceed £110m, although operating profit came in at £4.2m, a year-on-year fall of about a quarter mainly attributed to “significant” increases in raw material costs, particularly on polyethylene terephthalate – known as PET – used to make its bottles. The firm said when the results were published in September 2018 that it was “confident” that there was still a robust market for natural source waters, while it was also eyeing greater production efficiencies.
This is echoed by Montgomery, who says efficiencies are the only way to top up profits in a low-margin, volume-focused industry.
And while the group does export to areas such as the Middle East and the Caribbean, and is looking at China, it has no great ambitions to expand its international sales – which currently comprise 4 per cent of the total.
Instead, the focus is on the UK, with 85 per cent of its income from south of the Border. Highland Spring is “fiercely proud of being Scottish but we’re a British brand,” he says.
Montgomery also stresses that Highland Spring and the Scottish Government are working very closely together, after in 2017 he reportedly said business chiefs wanted it to get on with the day job rather than focus on independence.
The firm apologised, insisting that the comments were not intended as an opinion on whether Scotland should be independent.
Looking ahead, Montgomery says the brand is seeing “really strong growth” this year. Its sporting associations continue with its sponsorship of the all-female golf competition, the Solheim Cup, which takes place in Gleneagles in September. It supplied the Ryder Cup in 2014. It has also worked with Scottish Rugby – including Gavin Hastings and Kenny Logan – and cycling gold medallist Sir Chris Hoy. “They’re really great ambassadors for Scotland, great ambassadors for sport, and great ambassadors for our product,” says Montgomery.
In its efforts to stay ahead of the competition, Montgomery is mulling the addition of “innovative” products such as flavoured waters.
Zenith’s forecast for the overall UK bottled water market to 2023 shows an upward trend of 3 to 5 per cent a year, growing “robustly” but at a slower pace than in recent years.
But Montgomery believes natural sourced water is “here to stay”. “I believe the market for natural sourced water will continue – I believe people want something that’s natural,” he says.
“They will want it to have as little impact on the environment as possible and so they will want to be able to buy it as easily as they can do just now, they will want it in bigger bottles… and our business will have other products on the portfolio so it will be more than just water.”