Wedgwood chief executive rises to O'Reilly challenge

BRIAN Patterson is a man with a mission. He is aiming to double sales and treble profits at the Wedgwood division of the Waterford Wedgwood Group over the next five years. As chief executive of Wedgwood since June 1995, he has accepted his Chairman's Challenge to meet these targets by the end of 1999. The five year blueprint setting out how the targets will be achieved is being prepared. It will be ready by mid year.

Mr Patterson has already set the broad parameters of his task and is excited rather than worried by the challenge. "A target like that forces you to lift your eyes up and see what can be done", he said.

Group chairman Dr Tony O'Reilly only set the challenge after a number of strategy meetings with senior managers at Wedgwood, based in Staffordshire in England and its sister company Waterford Crystal.

When, last August, Wedgwood managers said they could double sales and treble profits over five years, Dr O'Reilly told them to go away and run their numbers again because the commitment could be "career threatening", Mr Patterson recalls. Another meeting was held in December and the Challenge was set.

"Doing what we do better" will be one of the ways Wedgwood will achieve strong growth, he said. Other plans include introducing new product categories into the existing ceramic products ranges, extending and improving distribution channels, extending the brand into new products and new markets and making suitable acquisitions.

"Wedgwood now defines itself as a tableware company. But already a huge proportion of our product is for the gifts market. So we are already in the gifts market but we focus on ceramics. If the Wedgwood brand is seen as the ultimate reassurance for gift givers and receivers a lot of doors will open and we can grow the business by extending into new business categories.

Passionate about the importance of branding, Mr Patterson feels the Wedgwood brand could be more innovative. He plans to "freshen the brand to make it more relevant to a younger market without losing core values". He wants to use the 200 year legacy of Josiah Wedgwood as "an inspiration, not as a crutch".

He plans to increase spending on brand advertising. Wedgwood advertising at an annual cost of about 5 per cent of sales is concentrated on pattern advertising, he said. He wants to spend up to 9 per cent of sales on brand advertising as the key to opening the door for brand extension into new products areas.

With new product areas "the key is to add to the brand not subtract from it", he says. Target areas include table top items, home enhancement items such as vases, bowls, statues, and personal accessories including jewellery and fragrances. Among the new table top items mentioned is the possibility of Wedgwood glassware. "But we would be careful we don't want to eat our cousin's lunch," Mr Patterson added quickly.

But "new branded products are not easy money", he agreed. Selling Wedgwood branded gift ware under licence has been very successful in Japan where the Wedgwood brand is popular. Licencees sold £19 million of Wedgwood linen, handkerchiefs and leather goods in 1995, generating estimated royalties of £1 million to £1.5 million for Wedgwood.

Improving the way things are done at Wedgwood will involve changes in distribution and more contracting out of production to lower cost producers. "Our distribution has become a bit arthritic. We need to open new channels and open outlets in new areas. But we must be careful not to upset our existing channels", he says.

Wedgwood will contract out its earthenware market production where in house manufacturing costs cannot compete with low cost producers. The company subjects every new product to its "make or buy" test. Its own plants get the opportunity to make their best bid to manufacture new products, but if another producer can make the right quality at lower, cost, that producer is likely to get the job.

The decision process starts with the price at which the product will be sold "this is not determined by us, but by the customer," says Mr Patterson. Then the profit margin required is calculated as the process works back towards the viable production cost.

Outsourced products accounted for 5 per cent of Wedgwood sales in 1995 at 23 per cent the figure is higher at sister company Waterford Crystal.

The percentage of products made by other producers for Wedgwood will grow, Mr Patterson says. From a strategic point of view multi competing sources should grow to about 10 per cent, he forecasts. About 40 per cent of Wedgwood earthenware is now produced outside company owned plants.

Outsourcing has not been the cause of job losses at Wedgwood plants, Mr Patterson insists. Some 945 people have lost their jobs in the company's eight plants since December 1992, 75 of them in 1995.

"The reality is that the vast majority of job losses have come from the application of new technology. We have spent £16 million on new technology to make our staff more competitive. Yes, there are less jobs but those jobs are more secure.

Mr Patterson is keen to stress the size of Wedgwood within the group with its Wedgwood, Johnson, Coalport and Mason's brands it accounts for 64 per cent of group sales. Sales reached £222 million in 1995 with operating profits of £17.8 million. With an operating margin of only 8 per cent the company is well off its target margin of 15 per cent.

Problems at the Johnson earthenware operation based in Staffordshire have been addressed, he said. A 2.6 per cent rise in sales at the Wedgwood division in 1995 masked a 14 per cent rise in Wedgwood brand sales which was largely offset by a drop in sales at Johnson. The solution at Johnson has included a new management team, capital investment to improve efficiency, outsourcing of production where the product could be made outside the company at a lower cost by another producer and changes in product pricing. On product pricing Mr Patterson is "hunting volume at a margin" by moving back into supermarket and private label sales which Johnson had abandoned in an attempt to move up market.

Management at Johnson has been given independence but it knows what it has to achieve and that "its careers are on the line", Mr Patterson says.

The new chief executive of Wedgwood is facing the same challenge to his career as he changes gear to go for strong and profitable growth over the next five years.