The spotlight is squarely on SABMiller now to turn around the fortunes at Fosters Australian brewing unit

The spotlight is squarely on SABMiller now to turn around the fortunes at Foster's Australian brewing unit

What caught my eye when SABMiller issued its full-year trading update yesterday was how the brewer suggested that its recently-purchased Foster's unit wasn't doing that badly. Lager volumes in the three months to the end of March were down by 4% year-on-year, said SABMiller, before highlighting that the performance represented “a slower rate of decline than the previous quarter”.

Maybe, but the fall was still worse than the country's beer category as a whole in the period. It also maintained the trend that Foster's beer operations had set in the years prior to SABMiller's purchase, which completed on 16 December.

Having got hold of the keys only four months ago, then, it's far too soon to give SABMiller too much of a hard time for the unit's figures. But, now that the transaction has completed, the brewer has to get down to work.

When we spoke to Gideon Alder from Investec yesterday, he suggested that the unit would need to focus on SABMiller's premium international brand offerings to reverse the slide. This has been made all the harder with the loss of licences in Australia for Asahi and Corona last year.

But, neither of these withdrawals was unexpected. Although not ideal, the brewer will certainly have allowed for such moves when it conducted its due diligence. “(Corona) is about US$60m-worth of profit (per year), and that's fairly material,” warned Adler. Evenso, this may prove to be a blessing in disguise for SABMiller: the company learnt the lesson the hard way in 2007 when the South African licence for Amstel was handed back to Heineken by a court of arbitration. At the time, around 2.3m hectolitres of Amstel were sold per year, accounting for 8% of all beer sold in South Africa.

At least now, the brewer will be focussing on growing its own premium international brands - like Peroni Nastro Azzuro, Grolsch and Miller Genuine Draught - rather than anyone else's in Australia.

What of the existing Foster's brands, then? Mainstream beers like VB and Carlton Draught still have a major role to play, so they're going to need fixing. A look back at SABMiller's earlier strategies post-acquisition suggest that the brands are in good hands. By reinvigorating brands, updating packaging, improving product quality and segmenting portfolios efficiently, the brewer's presence in Central & Eastern Europe and Latin America remains enviable. Can they do the same in Australia?

One final area where there is room for improvement is Foster's sales & distribution footprint in the country; specifically, its relationship with the off-trade duopoly of Woolworth's and Coles. The two chain have spent the last few years engaged in aggressive discounting of such staple items as milk. With Foster's, this strategy culminated with the brewer withdrawing its products altogether from the two for a time. Subsequently, the lines separating retailers and producers have been clearly marked, with the latter being accused of not demonstrating their determination to grow the category. New and stable management for Foster's, after year's of tinkering, should see the unit attempt to broach these lines and improve the relationships with Woolworth's and Coles: After all, they couldn't get much worse.

There is no denying that Foster's is a developed company operating in a developed market. We're not expecting to see fireworks, and nor is SABMiller. The company will not be relying on any dramatic changes but, while it won't want to continue losing market share, or reporting a worse performance than the market as a whole, SABMiller only needs a small tweak in trajectory to make the purchase worthwhile.