The beverage business blog from Olly Wehring
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Playing swap-sies with Foster's boss
05 Oct 2006 14:34
Into London yesterday, to meet the Foster’s Group CEO Trevor O’Hoy for the first time.
Despite being quietly-spoken, O’Hoy was certainly not backward at coming forward, and fielded all questions with a straight bat. Most noticeable was his response to my query about whether Foster’s would look to change its name in the future. After all, having sold the rights to the Foster’s beer brand in several markets recently, is the name not a little redundant nowadays?
“The name Foster’s gets us access to people like you (I’m hoping he means journalists) and also to shareholders,” he said. “Foster’s as a name is actually bigger than it really is – it’s very well-known. We see it as a net positive at the moment. You’ve got to have something to hang on to!”
When I asked him what potential names he’d consider, he smiled: “What’s Diageo backwards?”
“Actually, just-drinks is quite an apt name,” he added, glancing at my name badge. “I’ll swap you ‘just-drinks’ for our brewing interests in Vietnam, if you like!”
I would, Trevor, but the commute would probably kill me.
Sunbathing's over, it's back to business for Bacardi
02 Oct 2006 17:27
You’ve heard it here first. Summer is officially over - at least for those of us in the northern hemisphere anyway.
The sun may be still just about shining here in London, but last week marked the end of the industry’s annual summer slowdown as it rolled up its sleeves and got back to business.
Bacardi, in particular, has been busy. The privately-owned spirits giant has made a couple of changes to its distribution partnerships here in the UK. First, it has sold its stake in First Drinks Brands to its venture partner, UK distiller William Grant. Bacardi has also moved to extend its relationship with Brown-Forman in a deal that will see the two companies work together in the UK for five more years.
However, the highlight of Bacardi’s busy week was its NZ$138m (US$90m) bid for New Zealand’s upstart distiller 42 Below. The company, best known for its namesake premium vodka, was only founded in 1999 but has managed to build the brand into one of the most in-demand vodkas worldwide through irreverent advertising.
Bacardi’s move, approved by 42 Below’s founder and chief executive Geoff Ross, looks to be a win-win situation for both parties. Bacardi gets a premium vodka with great potential, which has been a hit in style bars on both sides of the Atlantic.
Sure, it’s only two years since Bacardi paid a whopping US$2bn for Grey Goose and super-premium vodka has proved highly competitive but 42 Below has succeeded due to its cheeky and unique brand proposition.
For 42 Below, the company gets capital. 42 Below needs greater financial and distribution muscle and Bacardi will take its vodka into far more markets worldwide. The company will also continue to operate from New Zealand, which is key, as much of the brand’s cachet has come from the country’s clean and fresh image.
V&S - worth an Absolut fortune to many
27 Sep 2006 18:06
Late last year, Bengt Baron, the president and CEO of Sweden’s V&S Group, told just-drinks that he believed there would be “a pause” in the consolidation of the spirits industry, as the world’s distilling giants took a breather to reassess their priorities.
“I won’t be surprised if there’s a pause right now because there are some balance sheets that would need some mouth-to-mouth,” he laughed. “But once that happens, we’ll see more.”
It’s likely that Baron did not expect V&S, the state-owned producer of Absolut vodka, to become the next big prize on the block. Sweden’s Social Democrat Party, ousted at the polls on 17 September, had ruled the Scandinavian country for six out of the last seven decades.
However, a centre-right coalition has won office and looks set to sell off a slew of government assets, possibly including V&S.
Although the company has refused to comment on any speculation, and the new government has yet to announce its intentions, the industry rumour mill is in action, grinding out possible suitors for V&S.
Fortune Brands has been touted as a potential front-runner alongside a number of other possible bidders - Brown-Forman, Constellation Brands, Bacardi and Pernod Ricard, as well as brewing giant Anheuser-Busch.
It’s clear that any auction for V&S will be fiercely competitive. The jewel in the V&S portfolio is Absolut, the world’s third-largest spirit brand and a product that has managed to maintain its premium reputation in the eyes of consumers despite being launched in the US almost 30 years ago.
A possible obstacle for any bidder could be V&S’ membership of the Maxxium distribution network. A prospective buyer would have to pay the other members of Maxxium a fair amount of cash to extricate V&S from the partnership.
Fortune, as a partner in Maxxium, would not have that problem but it remains to be seen if the company could afford a price tag estimated by analysts at EUR4bn (US$5.1bn) after its role in the Allied Domecq takeover last year.
Bacardi could face competition problems due to its ownership of Grey Goose vodka. Constellation could be one to watch. Last month it announced a share offering had raised US$700m, suggesting it has the financial firepower to bid for V&S, while it is keen to bolster its stable of premium spirits.
Pernod is known to want to boost its presence in the US, even after integrating the Allied business. Joint managing director Pierre Pringuet was quoted as saying Pernod would watch the V&S situation “very closely” but there would be competition concerns over the company’s ownership of the international rights to Stolichnaya.
The world’s drinks giants look ready to do battle once more.
Hello from Romania - No Ursus? No comment
26 Sep 2006 05:06
Greetings from stop two on our whirlwind tour of Central and Eastern Europe.
The observant of you may have guessed from yesterday’s top story that our first port of call on SABMiller’s whistle-stop tour of some of its facilities in the region was Hungary. A quick hop yesterday afternoon has brought us to Romania. Later today, we head to Poland. It’s not quite jetlag, but I'm pleasantly confused right now.
A marvellous dinner last night, involving flaming pots of Transylvanian goulash, a drop of Romanian rum, and a musical trio that piped us in and out (“Look, folks, the violinist is ON THE BUS!”), concluded - for those of us still standing - in a trawl of our home city for the day, for one last nightcap.
Imagine my hosts’ faces as, after taking in two different bars in this town (Cluj, located in the north-west of the country, 500km from Bucharest, and home to one of four breweries run by SABMiller’s Ursus subsidiary), we failed to find one stocking their own beer brands.
Good job our merry way was made at the end of a very long day - otherwise who knows? Mein hosts could have been a darn sight more annoyed than they actually were.
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.