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.
Flashbeer - the movie
19 Sep 2006 12:23
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.
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.
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.
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.
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.
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.
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.
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.”