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Weathering the Storm

Beverage World:

By Bill Anderson

In 2008 we came face-to-face with a global housing and debt bubble, we watched trillions of dollars of wealth literally vanish, and we came to the precipice of a second Great Depression.

But as I traveled around the beverage world this fall, I was struck by the optimism of many operators who were actively searching for creative merger ideas and the next hot brand, and who exuded gratitude to be in an industry that is recession-resistant.

Many operators, however, are still failing to take quick, corrective measures.  What should every operator be doing in this environment?  There are five common lessons:

Reduce Costs.  Death spirals occur when top lines drop and expenses continue to grow.  This is the time to reduce costs aggressively.  Anything that isn’t accretive to your earnings should be carefully examined.

Build Cash Reserves.  This is also the time to conserve cash at every opportunity.  Cash is the oxygen your business needs to breathe.  Generating and retaining cash is an absolute priority even for companies with adequate liquidity because credit options are severely constrained.

Manage Lender Relationships.  Lenders are less friendly and have less capital to dole out.  Credit lines will not be renewed, and covenant compliance will be more rigorously monitored.  As one beverage banker recently said: “This isn’t the time to play it close with your covenants.”  Your loan agreement, debt maturity schedule and covenant compliance should be a critical part of your monthly financial reviews.

Focus on Your Team.  Personnel reviews are now more important than ever.  Many beverage operators are family businesses, and focused personnel reviews often don’t take place or are not very meaningful in many of these companies.   This is the time to change that.  Use this period to further develop your leadership teams.

As Fortune editor Geoff Colvin writes in his excellent new book, Talent is Overrated, any organization that focuses on “candid feedback” and leader development “will build tremendous competitive advantage in its industry because its people will be developed to such an unusually high level.”  It’s an opportune time to create that competitive advantage.

Be Ready for Change, Upheaval.  As for 2009, what’s certain is that our economy and our industry are in for more dynamic change.  Those companies that anticipate well—by repositioning their business operations, refocusing their teams and enhancing their capital positions—will be ready for the upturn sometime in late 2009 or early 2010.