The Melbourne Cup is as synonymous with Australia as the Sydney Opera House and Lion Nathan has grabbed the sponsorship of it from under the nose of arch-rival Foster's. David Robertson assesses the ongoing feud between the brewers and where the world famous horse race fits into the battle.

The first Tuesday in November is an Australian institution and Lion Nathan is paying big money to be the official beer of this prestigious day.

The day is the Melbourne Cup, a horseracing event that stops a nation. Think Grand National and Kentucky Derby rolled into one.

Lion Nathan has splashed out a reported A$80m over 10 years for naming rights. The Fosters Melbourne Cup has, after 15 years, been replaced by the Tooheys New Melbourne Cup. Lion is expected to pump at least as much as the naming rights into associated marketing, including a prize draw where the winner walks away today with A$1m.

But Lion's decision to sponsor the Melbourne Cup is a far grander statement than just putting some money on the horses. Lion is making a sustained attack on the state of Victoria and Melbourne in particular. This attack is all the more interesting because Victoria is the home base of Australia's other brewer and Lion's arch enemy, Fosters.

Foster's Carlton & United Breweries has about an 84% market share in Victoria, compared with a little over 50% in the rest of Australia. Lion has been desperate to build on its miniscule 14% share in the state and has decided the only way to do so is by spending a lot of money.

Apart from the sponsorships and promotions Lion has also spent A$80m buying 45 hotels (pubs) to guarantee distribution, 34 are in Melbourne and 11 in the country. It has also negotiated beer-pouring rights at about 250 non-Lion pubs.

For the last month Melbourne has gone Tooheys crazy - largely because Lion has paid for billboards and marketing on every route from the airport into town and out to the famous Flemington racetrack. Lion is also rumoured to have spent A$1m on a celebrity and corporate hospitality tent, which was attracting almost as much attention as the regal Moet&Chandon tent. While Moet had Hollywood hero Heath Ledger, Tooheys was boasting the British man of pop Robbie Williams and another 700 well-heeled guests.

And the Tooheys tent was particularly busy during the Melbourne Cup as the weather turned bad.

"It's pouring with rain at the moment," said Lion investor relations director Warwick Bryan from Flemington. "But there's a big crowd and lots of Tooheys New is being consumed. The whole Spring Carnival has gone really well for us and we've had a big drive for Tooheys that has turned Melbourne into a Tooheys town. It's going really well apart from the weather."

But ever since Lion revealed that it was attacking Foster's in its own back yard the sceptics have pointed out that Lion is buying a very small market share increase for a lot of money. The latest figures show that Lion's share in Victoria was 13.9% at the end of September 2000. It is now 14.8%. CUB's share has dropped from 84.4% to 84% and its Victoria Bitter brand continues to dominate with at least a 42 per cent market share.

Meanwhile Tooheys New has achieved a market share of just 0.82% in September, marginally down on August but better than its 0.1% share a year ago. (Lion points out that this is 10 million glasses of Tooheys New since last year.) Does a multi-million dollar advertising and marketing blitz (combined with significant price cutting across Victoria) justify a market share of less than 1%?

Gordon Cairns believes he can get a massive return on investment because they're starting from such a low base

"I think looking at the monthly numbers is not a very useful indicator of how things are going," says Bryan. "This is an eight to ten year investment horizon and we will see how the results look at the end of that period. This week is the start of a continuous march. We hope to see steady progress and didn't expect miracles in year one."

Foster's obviously ridicules Lions efforts but Lion chief executive Gordon Cairns has explained to just-drinks in the past exactly why he considers the Victoria move worthwhile. He believes he can get a massive return on investment because they're starting from such a low base.

Realistically if Lion wanted a decent share of the second largest state in Australia it had to spend big. Consumers drink beer out of habit and changing those habits will take time, particularly in Victoria where there is a real sense of ownership of the VB brand. Lion has clearly committed itself to an improvement over ten years, which is radically far-sighted in modern business, but whether shareholders are as understanding will have to be seen.

To view related research reports, please follow the links below:-

The World Market for Beer
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