Olly Wehring

The beverage business blog from Olly Wehring

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Cider - first the best, second the worst?

19 Sep 2006 17:38

It seems there is no quenching the thirst for Magners cider. UK demand for the brand has forced its owners, C&C Group, to double capacity at its plant in Clonmel, the second time in a year that the company has expanded the site.

C&C is spending a significant amount of money, around EUR200m (US$253m), and the investment is a sign the company believes the cider boom will continue. The company saw Magners’ volumes soar 250% during the first half of the year and the performance of its sister brand, Bulmers, in Ireland suggests demand for cider is more than just a fad.

Scottish & Newcastle commands a dominant share of the UK cider market and no doubt hoped its marketing and distribution muscle would drive sales of Strongbow Sirrus and Bulmers Original, two products it launched after the first signs of Magners success in the UK.

However, C&C’s continued success with Magners demonstrates the benefit of being the “first mover” in what has become a lucrative category. Consumers see Magners as the premium packaged cider and the danger for S&N is that its offerings could be seen as a pale imitation of the Irish brand. After years in the doldrums, there seem interesting times ahead in the cider category.

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Flashbeer - the movie

19 Sep 2006 12:23

From the company that brought us one of my favourite beer adverts, comes this, which probably doesn't need much more comment from me...

 

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China's beer market - not quite the cash cow we thought

14 Sep 2006 13:51

There were conflicting noises coming from the world’s beer giants about their fortunes in China last week.

Heineken and InBev were both relatively downbeat about conditions in the world’s largest beer market as they announced their first-half results. However, Tsingtao and China Resources Snow Breweries, which hold the number one and number two spot in China respectively, both signalled their confidence in the market.

For its part, Heineken revealed that, although its operations in China were close to breaking even, the very low price of beer and “chronic” over-capacity meant the market remained “very tough”. InBev, meanwhile, attacked the “aggressive” price competition of its rivals in China for what it deemed a disappointing performance during the first half of the year.

Nevertheless, Tsingtao, in which Anheuser-Busch owns a 27% stake, forecast strong growth during the second half of the year in the country. Its nearest rival, SABMiller’s local venture CR Snow, enjoyed its own buoyant first-half on the back of soaring sales of the Snow brand.

Despite China’s undoubted promise, pricing remains a key issue and seems to be the critical factor in determining a brewer’s market share in key provinces. The big brewers talk of the potential of the growth of more premium brands in China but, save for in a few major cities, the average beer drinker can only afford cheaper, local brands.

The low price of beer may be an obstacle to profitability in China but multinationals would do well to realise that the market is not ready for a thriving premium segment.

Pushing mainstream brands, like Tsingtao and Snow, throughout the whole of China has won their owners share - albeit, perhaps, at the expense of profits - but has given those brewers a strong, more national foothold for when consumers can afford to trade up on a wider scale.

Heineken and InBev have built strongholds in the south and east of the country but it seems their regional focus has left them slightly off the pace in the race to capture the long-term growth in China.

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Vodka - does it matter what you're made of?

11 Sep 2006 16:51

As some of you may know, the European Commission is at loggerheads with Finland, which holds the rotating EU presidency, over vodka. While the Finns are pushing for protection for the spirit as a traditional spirit made only from grain or potatoes, the Commission wants to allow vodka to be made from a far broader range of ingredients.

While talks between the two sides are ongoing, the BBC has run a fascinating, albeit not wholly scientific, survey of whether consumers could tell which vodka was made from what agricultural produce.

With only three correct guesses out of 20 samples, a success rate of only 15% leads to the conclusion that it isn't as important as some might think. The bewildering array of contradictions amongst the samplers, however, might also suggest that this test shouldn't be taken as gospel.

It could, of course, also be an indication of what a weird and wonderful spirit vodka is. I remember visiting Russia four years ago, and hating the stuff prior to arrival. An intensive crash course in vodka drinking etiquette, however, drove me to love the stuff.

Churchill once said that Russia was a riddle wrapped in a mystery inside an enigma. He could also have been referring to vodka.

For the full BBC report, click here.

Comments on this blog post

The EU vodka issue is not mainly a matter of taste. It is a matter of respect for different traditions and customs. We have been drinking vodka made from potatoes or cereals in the Baltics, Nordics, Poland, Ukraine and Russia since centuries and it is an essential part of our national identity. The importance is e.g. reflected by the letter recently sent by the Russian Duma to the European Parliament. To my knowledge this is the first time this has happened.

 

Alarik Sandrup, Belgium

Isn't this test that BBC made totally pointless? I know by experience that good vodka tasters can sense the difference between vodkas produced from grain, grapes and sugarcanes, and this is much more relevant than consumer tastes. A parallell case would be the AOC system for wines from France, and I would love to see BBC making a test how many consumers could tell the difference between a Chassagne and a Puligny. Most MW's probably can not, which does not mean that anyone within the area should be allowed to put anything they want on their labels. I think that these kind of surveys should be kept out of serious discussion groups since they never add any relevant information and, which is worse, often are published as a result of a well performed PR campaign from someone within the business.

 

Ulf Sjodin, Sweden

Unlike many other spirits, vodka is not determined by ingredients or location, but rather by process. It could be made from anything. By definition: VODKA EU Definition: (1)A spirit drink produced by either rectifying ethyl alcohol of agricultural origin, or filtering it through activated charcoal, possibly followed by straight forward distillation or an equivalent treatment, so that the organoleptic characteristics of the raw materials used are selectively reduced. The product may be given special organoleptic characteristics, such as a mellow taste, by the addition of flavoring. (2) Bottled at a minimum alcoholic strength of 37.5 % ABV US Definition (a) Class1: Neutral Spirits or Alcohol: "Neutral Spirits" or "alcohol" are distilled spirits produced from any material at or above 190 deg. proof, and, if bottled, bottled at not less than 80 deg. proof. (1) "Vodka" is neutral spirits so distilled, or so treated after distillation with charcoal or other materials, as to be without distinctive character, aroma, taste, or color. There has been clever marketing gimics with vodka, personally myself i prefer a vodka with a bit of character from the heads and tails, that's what makes each brand unique.

 

Phil H, Australia

I've been told that people with grain allergies cannot drink grain-based spirits but that other spirits (rum, brandy, potato- or grape-based vodkas) would not trigger an allergic reaction. Any truth to this?

 

Doug McDowall, United States

By US law, vodka must be odorless,colorless and tasteless. The hype of numerous brands being made with grapes, corn, wheat or whatever is all a marketing ploy. In blind tastes,almost 85% of those tasting samples of vodka made from all these different sources of starch were unable to tell one brand from another.Goose, Absolut, Ketel & Level are the same, except that each of these brands will have an unusual bottle, ad, or "story of how many times the brand was distilled or filtered".Marketing and clever ads will make a brand, along with a high retail price that gives the consumer the "idea" that expensive equates to "better". Norman Weiner, United States

 

Norman Weiner, United States

About 80% of vodka volumes sold in Brazil are made from sugar cane spirits, including some of the best like the recently launched "Snovik" brand are distilled three times and filtered many times more in special charcoal filters. The Smirnoff brand made locally claims to use cereals. In blind tests I witnessed the vast majority of tasters cannot tell the difference.

 

Peter Armstrong, Brazil

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French wine - as clear as mud?

10 Sep 2006 17:18

Just when the French wine industry makes noises suggesting it is simplifying its offering to consumers, the body in charge of creating appellations has created two more - and extended two others.

The Institut National des Appellations d’Origine’s decision this week to create two new appellations - both in the Loire - and extend two in the Languedoc, comes as the industry is fighting to win back drinkers from their New World rivals.

Appellations, or AOCs, are intended to recognise the high quality and specific characteristics of wine produced in a given region. However, with over 450 regions in France with AOC status, wine drinkers around the world - and even in France - can be forgiven for feeling confused over which wine to buy and from where. Adding yet more AOCs into the mix will only add to that confusion - and drive consumers to the more simplified offerings provided by Australia, the US and the rest of the New World.

The French wine industry is starting to embrace the concept of wine brands and has begun to accept that AOC status is no longer a reference point for the consumer in the same way as brand and grape variety are.

But this message is taking time to get through to all in the French wine industry. It’s taken around 15 year's of New World pressure for France to lose its market leading position in a market like the UK - it could take the country as long again to win it back.

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Heineken fighting to break China

06 Sep 2006 17:00

Strong performances in most of the world’s emerging beer markets led to a set of healthy first-half results at Heineken today (6 September).

Nevertheless, it was interesting to note the comments of Heineken CEO Jean-Francois van Boxmeer on China, a key emerging beer market but also the world’s largest by volume.

Heineken, he said, was close to breaking even in China after over a decade in the country but he insisted it remained a “very tough market”. Multinational brewers have faced difficulties in distributing beer across the country while the very low price of beer makes it a challenge to generate rising profits.

“If you see the selling prices there, and I’m talking about your bread and butter local Chinese brands, then pricing is very low at around EUR22 (US$28.13) a hectolitre. It’s extremely difficult to earn a lot of money,” van Boxmeer said.

“It’s a very tough market structurally. We don’t have a pessimistic view on China but we don’t see going forward anything that will make that situation structurally change. There is chronic over-capacity in the market of around 30%.”

Nevertheless, SABMiller’s Chinese venture said today that its earnings during the first-half had risen 26% to HK$75m (US9.6m) as sales of its national brand, Snow, soared 85%. The venture seems to be succeeding in pushing Snow as a national brand and is fighting it out with Tsingtao for top spot in China.

Heineken, alongside Asian partner Fraser & Neave, has spent much of this year expanding its presence on the continent outside of China, with deals to strengthen their foothold in India, Laos and Vietnam.

It’s vital for Heineken that it doesn’t take its eye of the ball in China and allow its fierce global rivals to grow too strongly in such a key market for future growth in the beer industry.

Comments on this blog post

I've just recently returned from China. No wonder we can't see any Heinekens there. The Chinese are very serious in patronising their own products. Heineken will really try harder and harder to penetrate into their market, but it really takes a whole lot of patience and determination.

 

tyn22, Philippines

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Diageo to sell Guinness? Here we go again

04 Sep 2006 15:56

The future of Guinness is secure - despite the by now familiar speculation surrounding the iconic stout brand late last week.

The speculation has become a fixture of press conferences on Diageo’s half-year and annual results in recent years and with Guinness sales slumping in its Irish heartland over the last 12 months, murmurings about the brand’s future are growing ever louder.

Some industry watchers see Guinness - and Diageo’s wider beer business - as an anomaly in a portfolio which boasts some of the world’s top spirits brands. Chief executive Paul Walsh did little to dampen that belief when he insisted that the Diageo spirits cabinet would be its “prime focus” in the months ahead as it looks to build a presence in emerging markets such as Russia and China.

What’s more, it’s an open secret that Diageo is keen to add to its burgeoning wine stable, despite last year passing up the option to buy New Zealand’s Montana.

Given that context, as well as the poor performance of Guinness in Ireland - volumes down 8%, sales down 3% - it is easy to understand why some reckon the writing’s on the wall for the brand.

However, Walsh was quick to insist that he still saw a “huge advantage” in Diageo being present in spirits, wine and beer. “Total beverage alcohol is important and it’s here to stay,” he said at the London press conference last week.

Walsh pointed to sales growth of 4% from the company’s beer business, a result, he said, that “stacks up well against the global brewers”. Guinness volumes rose 7% in the US as Diageo successfully tapped into growing demand for imported beers across the Atlantic. Guinness also enjoyed continued popularity in Africa with sales up in Nigeria and Ghana. As Walsh said: “Guinness is more than Ireland and Ireland is more than Guinness.”

Sure, Guinness sales are suffering in Ireland and, to a lesser extent, in the UK but the brand has been hindered by issues including the Irish smoking ban and the shift from on- to off-trade consumption in both markets.

Diageo has proved adept at solving acute problems with brands or markets. For instance, after identifying South Korea - a key battleground for distillers - as a weak market last year, Diageo now leads the whisky category there. The company is now looking to revive Guinness in Ireland and the UK through marketing campaigns and product innovation.

In spite of its problems in Ireland, Guinness’ enduring popularity in a number of markets - despite steady price increases - means it acts as a cash cow for Diageo’s rising marketing spend behind brands like Johnnie Walker. It would be wise not to expect Diageo to be putting the ‘For Sale’ signs up outside the St. James Gate brewery in Dublin just yet.

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Girl power

01 Sep 2006 17:11

Indra Nooyi, the chief executive-designate at PepsiCo, has received a welcome fillip as she prepares to take the top job at the soft drinks giant.

Forbes magazine has named Nooyi as one of the most powerful women in the world.

Nooyi, who will become Pepsi’s CEO on 1 October, was fourth in the list of the most powerful women on the planet.

The only women above her on the list were the Chinese vice-premier Wu Yi, US secretary of state Condoleezza Rice and at number one, German chancellor Angela Merkel.

And it seems that women have arrived on the wider corporate stage. A total of 48 women on Forbes’ list now run businesses either as chief executives or chairmen, up from 35 last year.

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Foster's takeover talk is a load of froth

30 Aug 2006 16:38

Is Foster’s Group really a takeover target? Despite shares in the Australian drinks giant fizzing to their highest point in over 15 years this week, speculation that InBev or SABMiller would be interested in buying the company seems wide of the mark.

Foster’s would be unattractive to a pure brewer. The company generates around 40% of its profits from its wine business, operations that it is also still in the process of restructuring after its takeover of Southcorp.

InBev or SABMiller would not derive any synergies from keeping Foster’s wine assets and would need to line up a buyer for the business. While, in theory, that is not out of the question, few major wine players would be keen to snap up a wine portfolio that remains unsettled post-Southcorp.

Nor does Foster’s appear ready to follow the sale of its international beer business by offloading its domestic brewing assets. The company has worked hard to organise its domestic distribution arrangement along multi-beverage lines, where beer, wine and spirits are handled together. What’s more, Foster’s enjoyed a 17% rise in earnings from its domestic beer business, proving it can make money from a mature beer market.

SABMiller has already signalled where it thinks future growth in the Australian beer market will be with a joint venture with Coca-Cola Amatil that will push its stable of premium beer brands.

InBev, meanwhile, is unlikely to plunge into a mainstream Australian beer market categorised by slow growth when it has enough problems driving sales in similar markets in Western Europe.

Foster’s CEO Trevor O’Hoy may have spent the last couple of days saying that the company was on the “radar” of multinational drinks producers as a “strategic” asset but this sounds like a move to reassure investors that the company is a dynamic one - rather than an indication that bids are on the horizon.

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Tips for Coke and Pepsi in India

30 Aug 2006 16:27

One thing that the Coke/Pepsi pesticide debate has thrown up is a wealth of so-called experts giving their opinion on how best to handle the furore.

Naturally, the two soft drinks giants must be incredibly grateful to have all these tips after the event. But before I give you what I think is my favourite piece of advice on this situation, let me wade in with my opinion, which is this:

Never forget that India - like China - is totally different to any other market on this planet. What may have worked in the past might not necessarily work here. The rewards offered in India are potentially unlike any we’ve known, but so is the market.

And the winner of the best nugget to help Coke and Pepsi has to go to this, anonymous, head of an Indian marketing consultants: “The best way to handle controversies is to not allow them to develop in the first place.”

Comments on this blog post

Coke and Pepsi have been making mistakes from the day they entered India and they still do. Sometimes I wonder whether they are in the CSD business for the long term. 1. Coke tried to bend the fundametallly seasonal CSD market into a seasonal market. Did they achieve that? If not, why don't they have a drink for the "unseason". 2. Any Indian businessman knows Govt. has been a spender for several DECADES. They give into salary hikes, give subsidies for the sake of elections, low tax threshhold etc. Will any prudent business person try to convince the govt. to LOWER taxes? Coke and Pepsi increased sales and paid higher taxes. State and Central Govt. was happy. 3. What is the expereince of CEOs of Coke and Pepsi in the Indian Beverage market? CSDs have been in India for over 80 years. 4. When you dig a borewell you should look around you. Companies use not more than 30hp for the sunk wells. If you sink a 200 hp borewell every 400 kms in India, who would not notice it? 5. Fountain system was introduced in India 6 years. Wonder who planned the logistics. Where do get water for the fountains? Given a chance they would have sunk a borewell at every fountain installation. Many more to ask.......

 

V&co, India

Good advice, but the issue is how. This controversy first surfaced three years ago, when the Center for Science and the Environment clearly indicated that it was targeting foreign firms because it would get publicity for its efforts to call attention to the parlous state of ground water contamination in Italy. Coke and Pepsi failed to take the hint and kept their heads in the sands. Now the issue resuraces and this time every demogogic nationalist politician will beat up on Coke and Pepsi as if that would provide safe drinking fluids for Indian consumers (which it will not).

 

Paul Garver, United States

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