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Source of inspiration: Lessons for landlords from Highland Spring’s rapid growth

BUSINESS CONNECT / HIGHLAND SPRING GROUPBUSINESS CONNECT / HIGHLAND SPRING GROUP

ABOUT

Business Connect was launched by HouseMark in 2013 and aims to help housing providers to gain insights into the operations of successful businesses in other sectors. The ambition is to challenge social landlords to use these visits to public and private sector organisations to unearth new ideas and better ways of working, which can then inspire their own business planning process.

The first HouseMark Scotland Business Connect visit was to the UK’s leading bottled water supplier, Highland Spring Group. This publication reports on a visit by HouseMark Scotland members to Highland Spring Group’s Perthshire headquarters on 30 September 2014.

Making a splash

Contents

Highland Spring Group has doubled in size over the past five years, and has big plans to expand its product range. HR director Fiona Gibson explains why the housing sector could learn a lot from the bottled water company’s success

e are sitting in a meeting room in the headquarters of Highland Spring Group in the heart of rural Perthshire

and the conversation is hotting up. Fiona Gibson, the company’s director of HR, is discussing the key role that temperature plays in the business of the UK’s leading supplier of bottled water.

“We used to be very seasonal and our staff here used to have quiet times where they could take days off,” she says of the 35-year-old business. “Now we don’t have any quiet times. The average temperature throughout the whole year last year was up by four degrees. Temperature for our business makes a huge, huge difference. It meant we had no down time at all this year. We were really selling as fast as we could put bottles on the shelves. That is how phenomenal this year and last were in terms of temperature and sales.”

Phenomenal is certainly the word to use to describe a business that, after a relatively steady expansion for its first 30 years, has seen a surge of growth in the past five years. It has doubled in size during this time, bottling 500 million litres of water each year across its five UK sites and generating £100 million in turnover in 2013 (see key facts box, opposite). That it has done this in a sector that can, like housing, struggle sometimes to get its message across in the mainstream press, and during the worst

recession in generations, makes its achievements all the more impressive. It will not be resting on its laurels, however, with plans afoot to diversify its product range. HouseMark Scotland has brought some of its members to Blackford, near Dunblane, to glean tips on how Highland Spring Group has done it and how it decides where to go next.

At first glance, a bottled water producer may not be the most obvious destination for the first visit of HouseMark Scotland’s Business Connect programme. However, Gibson is adamant that “there are a lot of similarities between a company like Highland Spring and your organisations”. Her rationale for this is the degree of change that her business has experienced as it has grown into the market leader (see page 6, as well as above). As part of the corporate strategy to double the business by 2013, and in addition to strong market growth, Highland Spring Group bought companies in the north of Scotland (Speyside Glenlivet), in the Campsie Fells near Glasgow and in the Brecon Beacons in Wales. It has gone from having fewer than 200 staff on two sites in Perthshire to 460 across five in the space of a couple of years.

Yet this was not some simple stride forward for a well-oiled corporate machine. Gibson admits that Highland Spring Group had to travel a long way in a short time to manage this change and ensure it maintained

production to meet the rising demand from UK consumers, who spent £812 million on bottled water in 2013 – an annual growth of 12 per cent. As a result of the burgeoning popularity of bottled water, the market has become increasingly competitive. According to Gibson, the market research that Highland Spring Group carries out shows these challenges are only going to increase. “Like any business, we can’t be over-reliant on a single market category,” she says. “The plain bottled water category is reaching maturity, so we have to think about how we can diversify to continue to grow.”

To help it decide what to do next, Highland Spring Group worked with a management consultant to identify its areas of “strategic capability”. There were 12 of these, which were then ranked to identify those that were critical to the success of the business. “Then we said, ‘Where are we currently?’” adds Gibson. “And we did the same ranking exercise, and

what came out was that the areas that we said were critical had the most potential to improve.” The executive team decided to focus investment on three key areas: financial management, leadership of change, and talent and creating an engaged workforce.

This process of strengthening the existing business will sound familiar to housing professionals and is ongoing (see page 7). But what about further business growth? The other strand to Highland Spring Group’s corporate plan is to generate new revenue streams – also a familiar refrain for many social landlords. “The key point for us was not to say, ‘What can we do?’ It was to actually say, ‘What is happening now and what is happening on the horizon?’ You start wide and funnel it down,” says Gibson. She adds that innovating and developing new products to meet – or indeed anticipate – consumer demands will be a core focus for the future.

The result of this future-gazing, supported by the company’s own consumer database and that of consumer data business Dunnhumby, was Highland Spring Country – a naturally flavoured water that launched through Tesco earlier this year. Gibson says the product was a success and that the company is planning its next steps to roll the brand out more widely as “it is important growth comes from products not in our portfolio today”.

Building the brandA carefully managed identity is vital to maintaining Highland Spring Group’s reputation

Who’s drinking?Data capture is a vital tool in understanding your customers

The Highland armyRapid growth requires new recruits – but how do you keep the workforce motivated?

Testing the waterBusiness Connect attendees share their views

Keep it flowingImproving production capacity through the “nudge” approach

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Key learning points

Never miss an opportunity to use a customer interaction, or “touchpoint”, to glean further information about your audience. Highland Spring Group maintains its own opt-in consumer database and also accesses shopper data, including transactional data from customers, through various organisations.

Use the model of strategic business capability to assess what issues are critical for the success of your organisation and the extent to which you are currently addressing them.

Highland Spring Group worked with industry peers to launch the Natural Hydration Council in 2008 in order to create a consistent voice for bottled water producers on issues that affected the whole market, and to promote healthy hydration. A recent example of this involved challenging claims made in a Lucozade Sport advert that the product rehydrated users better than water. The Advertising Standards Authority upheld the complaint that this was misleading for all but elite athletes.

Highland Spring Group key facts

Formed in 1979 in Blackford, Perthshire Turnover of £97.7 million in 2013 –

90 per cent of which was generated in England

Has 460 employees across five sites in Scotland and Wales

Privately owned by the Al-Tajir family in Dubai

Largest bottled water supplier in the UK with 21 per cent market share

In addition to Highland Spring, it owns the Speyside Glenlivet and Hydr8 brands

We can’t be over-reliant on a single market category.

The plain bottled water category is reaching maturity, so we have to think about how we can diversify to continue to grow

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54 BUSINESS CONNECT / HIGHLAND SPRING GROUPBUSINESS CONNECT / HIGHLAND SPRING GROUP

Building the brand Who’s drinking?Maintaining Highland Spring Group’s healthy, ethical identity requires careful management, astute partnerships – and even collaboration with rivals

The bottled water giant knows the value of building a vast customer database, and tapping into it to help make key commercial decisions

ndrea McQuaid, Highland Spring Group’s head of brand marketing, has got Rory Gaffney thinking. “We

are basically helping our customers understand we are at the lower price, reasonable quality end of the market and managing expectations accordingly,” says the director of business services at Cairn Housing Association. This may sound obvious when seen written down, but the issue of your brand and how to position it is one with which many social landlords are currently grappling.

McQuaid’s view is straightforward. “Brand is shorthand for your reputation,” she says, making a point that will resonate with many landlords. ”It is something that impacts on every corner of your business. A good reputation sells more, it helps negotiate a better deal and it manages your presence in the media – especially helpful should there be potential for negative media coverage. So reputation is everything.”

Understanding the organisation’s reputation and communicating the benefits positively is where the work of McQuaid and her team really comes to the fore. “Much of what I do is about changing and nudging perceptions,” she says. “I am personally concerned with the person who is buying the product and the person who is drinking the product. I am thinking about that all the time. That is the framework against which I make all my decisions. I ask myself, ‘Does this help? Is this useful? Is it better? Is it worse? Can they hold it? Can they drink it? Can they store it?’ I want to be the first brand people think about when they’re thinking about bottled water.” (See opposite for more on market research.)

Partnerships with other reputable and aspirational organisations are a key means by which Highland Spring Group builds this “emotional connection” with consumers and underscores the quality of its brands. These partners include the Lawn Tennis Association, the Soil Association (which certifies the organic land in the Ochils from where Highland Spring is sourced) and, most recently, golf’s Ryder Cup (which took place on its doorstep at Gleneagles in September). “We can talk about Highland Spring as a ‘superbrand’ and an ethical brand because we have these third-party endorsements. And this is not a marketing contrivance – the brand reflects who we are,” says McQuaid.

Health and the growing concern among the public over high sugar content in many products is another important area for Highland Spring Group. “There is no doubt about it – sugar is the new tobacco,” says McQuaid’s colleague, HR director Fiona Gibson. “This is a massive issue for the soft drinks market but for us it’s a fantastic opportunity.” Highland Spring Group and other bottled water businesses such as Danone (owner of Evian and Volvic) and Nestlé (owner of Buxton) have been quick off the mark and jointly launched the Natural Hydration Council in 2008 to promote the benefits of drinking water. Gibson adds: “It has been very successful in influencing agendas on the hydration debate, the health debate, the sugar debate. Also educating people on bottled water and ensuring people are given the facts, not just rumours.”

For Highland Spring Group and some of its products, such as Highland Spring and Hydr8, understanding the facts is increasingly important, as these brands are aimed at the mass market and “products that sit in the middle ground in any sector need to defend their position just now”. This is exemplified by the rapid growth of budget supermarkets Aldi and Lidl. A chart displayed by Gibson shows that the two German chains’ share of the UK bottled water market has grown by a third in the past 12 months, at the expense of middle-market rivals Tesco and Morrisons.

“Consumers are now shopping differently across categories,” explains McQuaid. “It’s known as the ‘lipstick effect’, where people will shop in the discounters for their fruit and cooked meat so that they can afford to buy a luxury nail varnish. If you are a brand in the middle you need to be clear and communicate: ‘Why am I here? And why would they buy me?’”

ighland Spring Group is the largest supplier of bottled water in the UK and its eponymous brand, which

was introduced in 1979, is the country’s most popular, selling almost 200 million litres in 2013. The UK bottled water sector was worth £812 million in 2013 and grew at an annual rate of 12 per cent. According to Andrea McQuaid, the group’s head of brand marketing, 2014 was a record year for bottled water, with suppliers going all out to keep pace with consumer demand. So who drinks all this bottled water?

Highland Spring Group works closely with consumer research company Dunnhumby to access data on its target market. McQuaid says their work has identified seven groups of shoppers buying bottled water. Of these, three are the core target market for the company’s Highland Spring brand (see box, right). “This analysis shows me my priority market segments,” she says. “That helps me make the tough decisions I need to on where best to invest my budget to ensure I can have the greatest effect, and therefore the biggest return.”

For people unable to access such a wealth of knowledge, McQuaid has the following advice: do data capture on any customer “touchpoint” that you can and build up a database. “Our database is about 54,000 and we have built this up over a long time,” she says. “We can classify that into sports enthusiasts, still water drinkers, sparkling water drinkers – the data isn’t incredibly rich as we try not to be too intrusive, but it is a means to do more. If you have direct customer contact, take opportunities where you can to capture little bits of information

– just have one or two questions that people might be prepared to answer. I know organisations feel uncomfortable about that sometimes, but if it allows you to be more useful to those who might buy your product, I think you will be recognised for that.”

Once you have identified your target market, it is vital to be clear about your commercial or business objectives, and to evaluate your performance. “I am a big fan of KPIs, tracking the numbers and tracking research – I don’t necessarily want to hold the team to account, but I definitely want to learn, learn, learn,” McQuaid says. “Tracking consumer motivation involves questions such as, how engaged are you in this brand? How likely are you to buy it? How likely are you to drink it? You can define the most useful KPIs for your business, depending on what you are trying to market.”

Key learning points

“While Highland Spring Group works with a number of specialist agencies, smaller budgets shouldn’t mean you’re on your own,” says McQuaid. “Marketing trade magazines are a great resource, and many agencies and creative directors publish regular blogs, giving everyone access to cutting-edge thinking.”

McQuaid’s brand proposition advice to social landlords: “Find your unique space – what you are known for or proud of. Own it and make sure it reflects what your target audience need. For example, your proposition could be around ‘flexibility’ – what you are offering to customers as they go through change in their lives in terms of new family members arriving or granny moving in. You’re all competing for someone’s rent – identify what’s special about you.”

“We can talk about Highland Spring as a ‘superbrand’ and

an ethical brand because we have these third-party endorsements

A H Highland Spring Group has identified three core consumer markets for its Highland Spring, Speyside Glenlivet, Highland Spring Country and Hydrat8 products:

Committed drinkers An affluent family who buy and drink bottled water in all its formats – large bottles and small bottles for on the go. They don’t really drink tap water at all.

Active families They are slightly less affluent, busier and with less time on their hands. They might drink tap water at home, but will typically buy small bottles from the supermarket in big multi-packs and take them for when they are out.

Thirst quenchers Typically younger, on the go and not brand-loyal but like brands. If you are in the right place at the right time they will buy you.

THREE IS THE MAGIC NUMBER

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76 BUSINESS CONNECT / HIGHLAND SPRING GROUPBUSINESS CONNECT / HIGHLAND SPRING GROUP

The Highland army Keep it flowingFollowing its recent growth, Highland Spring Group has moved quickly to plug key skills gaps and instill a sense of brand loyalty into its new workforce

The company’s new business plan ‘nudges’ factory staff to improve performance and aims to cut downtime on the production lines by 5 per cent

Doreen Kirkland Head of risk management, Dumfries and Galloway Housing Partnership

I am keen to understand how Highland Spring approaches

customer insight – how it knows what people want and why? How does Highland Spring keep its finger on the pulse of what customers want?

And I would like to see how it manages staff performance

Margaret Brannan Communications manager, Queen’s Cross Housing Association

I am interested in finding out about the culture of Highland Spring

and how it is embedded in everything it does, and in every employee throughout the organisation.

to drive targets and staff delivery against these. Also, how does Highland Spring manage the cost versus quality debate? I am keen to be able to connect what our staff do at a micro level with the overall performance of the business.

I am really interested in finding out more about customer profiling, dealing with managing customer expectations and leading innovation – how do you know in what different ways you can take your markets?

Rory Gaffney Director of business services, Cairn Housing Association

Highland Spring has a clear desire to improve the bottom line and

I wonder about the extent to which we can be as clear on that in our sector in the absence of competition.

To use the supermarket analogy Fiona Gibson used, we are basically helping our customers understand we are at the lower price,

Anne Cook Social housing services manager, Scottish government

I am looking for things we can take back to our workplace.

Also, in my role looking at the performance of landlords, I am looking at things that maybe they could take on board.

reasonable quality end of the market and managing expectations accordingly. So it might well be that customers choose to pay this lower rent so they can afford other luxuries in life, whereas others might want a higher quality product and be willing to pay more. This comes back to the argument about diversification. It would be foolish to try to offer that broad spectrum from the low-cost to high-quality products across your entire customer base.

Fin Smith Head of business improvement, Cairn Housing Association

I want to get beyond the insular view of the sector and

the specialisms within which we operate. I think it is always really interesting to come out and see how other organisations are doing things to see what we could do better.

Jennifer Litts Head of housing services, Falkirk Council

I now have a real sense we are going in the right direction in terms

of what we are doing. We need to make sure we are doing the services we need to at the standard we need to. What I heard today definitely resonates with the changes we are making to encourage tenants to work with us rather than have us simply do it all.

Gail Gourlay Director of customer services, Trust Housing Association

We’ve got better over the years at communicating internally

among our own types of organisations, but I think how the private sector approaches things is really interesting for our businesses.

Michelle McCormick Assurance officer, Wheatley Group

It struck me that things like the Operating, Efficiency and

Effectiveness strategy are over and above what the daily job was previously. Also the capability chart was good – I’ll definitely take that back to Glasgow. It is key for us to be on top of aspects like that, with all the change we have been through in recent years.

We have a strong core of people who will live and breathe this product,” says Fiona Gibson, Highland Spring

Group’s director of HR. “I will guarantee you 80 per cent of the workforce are so passionate they will stand on the street and sell our water if that’s what we wanted. The aim for every business is to ensure each member of its workforce is a powerful ambassador for its products and services.”

Housing providers will recognise the scenario of a loyal, long-term staff that has to modernise to keep the business in fighting shape. Prior to the recent mergers, says Gibson, “people had an average length of service of 15 years – they had never worked anywhere else or experienced much change in the workplace”. With the addition of the sites near Glasgow, in Speyside and in the Brecon Beacons, “suddenly the culture of Highland Spring was very different. The management team didn’t know everyone by name. They had a whole new site in the Campsie Fells, near Glasgow, where many of the staff don’t speak the same first language, as they are Polish. It had grown

from a single site business to a portfolio of facilities in different locations, so things started to become more challenging.”

Few social landlords will experience such rapid change, but even if they do, the sector’s strong people focus means they are likely to have an HR function to support the management team, which will be vital in managing change. This has not always been the case at Highland Spring Group. “Until I joined three years ago, HR was an admin role and the performance reviews were not as thorough as they are now,” says Gibson. “But with growth comes change. You need to be able to support the management team to make difficult decisions,” she adds. “Some staff will embrace change and see it as a great opportunity. Others will struggle with it and you want to take everyone with you.”

Gibson also raises the thorny issue of retaining good staff when opportunities for promotion are scarce. “We had to make sure we had the capability in internal skills in areas like sales, IT, HR and marketing to take the business to the next level. But how do you make room for talent when you have a workforce of long-serving

employees?” she asks, citing the example of the Speyside Glenlivet facility, where the average employee age was 72 when Highland Spring Group took it over.

The solution to this issue has been to spend the past two years plugging the skills and knowledge gaps identified during the development of the group’s new business strategy. In future, it will focus on promoting from within and training people where necessary. “We are in rural locations and the talent market is very fierce. What I have to offer is really around that employer branding and that opportunity for growth and career and skills development once someone is in the business,” Gibson says. Housing providers facing similar challenges will take confidence from the success Highland Spring Group has enjoyed, despite these constraints.

“Under our new business plan, we have a strategy that says people are behind everything we do,” says Gibson. “We need a workforce that can deliver on our aims. Their behaviour, how they perform at work, can actually make or break us. You can repair a machine, but if you lose your reputation it is a lot more damaging.”

We have only taken about 2.5 per cent of the water that is in our site in the hills,” says the guide for our factory

tour, Kevin, one of four shift managers at Highland Spring Group’s Blackford facility. This is despite the fact he and his colleagues can “take thousands of gallons a day”. He tells us not to worry though as “it rains in Scotland!”

The mood among staff at the factory seems similarly good. As we are led through the facility, the four lines whizz and soar around us (see box). All seems fine, when suddenly a line stops: a label has come loose. A tweak to the labelling machine and the line is soon speeding past once more, while a blue-overalled operative bends over a console, entering information about the problem.

This may sound incongruous, but what we have just witnessed is one of two key business strands of Highland Spring Group in action. “Our strategy is two-fold,” explains Fiona Gibson, director of HR. “The first part is about optimisation.

This asks, what do we currently do today that we can do better? Across the business in certain sectors we have launched what we call OEE – Operating, Efficiency and Effectiveness. It sits right at the basic level of saying, ‘This is my line and I have 100 production hours and I only get 70 production hours out of it, what am I doing for that other 30 hours that I can reduce?’”

Although the optimisation drive began once the current business plan was agreed in 2012, OEE was only launched this year. Its aim is to cut “downtime” on the lines by 5 per cent and so increase production capacity. The terminal we saw is part of Highland Spring Group’s Kiosk system, which is used to manage the performance of the factory’s production lines. The colourful printouts from this, showing the level of performance across the various shifts and production lines, are plastered all over the walls of the factory’s communal areas. Gibson says this “nudge” approach works in ensuring employees take pride in the performance of their shift and means specific incentives are unnecessary. “We are already well on our way towards hitting our target,” she says.

Key learning points

Highland Spring Group uses LinkedIn and recruitment agencies to build recruitment shortlists. It uses the McQuaig system of psychometric questioning to assess candidates’ abilities and keep the recruitment process to two interviews.

Highland Spring Ambassadors is a programme the HR team hopes will be completed by all 460 employees by 2018. Staff will be offered training in order to spend time in communities close to the company’s factories, or with its sporting partners such as the Lawn Tennis Association, promoting the Highland Spring Group brand. In exchange, they will receive further opportunities.

On the line

There are four production lines at the company’s Ochils site in Blackford, Perthshire

At maximum capacity the four lines can produce 32,000 bottles an hour

From bottle mould to packaged takes 15-20 minutes

Products undergo a strict quality control process for three days before leaving the factory

There are two shifts per line of 12 hours each, with 31 employees per shift

“ “I am keen to be able to connect

what our staff do at a micro level with the overall performance of the business

It might well be that customers

choose to pay this lower rent so they can afford other luxuries in life

TESTING THE WATER WHAT DID ATTENDEES TAKE FROM HIGHLAND SPRING GROUP’S APPROACH?

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