The beverage business blog from Olly Wehring
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InBev continues quest to go from biggest to best
24 Feb 2006 16:39
Newly-installed InBev CEO Carlos Brito faced analysts and reporters for the first time today as he outlined the brewer’s performance in 2005.
Brito, a veteran of AmBev, the brewing giant’s Latin American business, was appointed to the top job in December and tasked with taking InBev - as its oft-repeated mantra demands - “from being the biggest to the best” brewer on the planet.
Since the merger between Interbrew and AmBev in 2004, the brewer has targeted an EBITDA margin of 30% by the end of 2007. The merger created the world’s largest brewer by volume and, no sooner had the ink dried on that deal, InBev was eyeing Anheuser-Busch’s crown as the world’s most profitable brewer.
Today’s results suggest that, despite continued buoyant sales in the emerging markets of Latin America and Central and Eastern Europe, Brito has some work to do to ensure InBev hits that target.
Like a number of its rival brewers, InBev found the going tough in Western Europe last year. InBev’s volumes in the region were hit by falling sales in the UK and Germany. And, like a number of its rival brewers, InBev has moved to cut costs in Western Europe as part of its attempts to improve profitability. Jobs are to go in France, in Belgium - where the brewer is controversially closing its Hoegaarden brewery - and today it announced a fresh round of cuts in its finance, procurement and export departments across the Continent.
Brito’s rationale for the cuts makes sense. By streamlining these functions, InBev can focus more of its efforts - and crucially devote more cash - to its sales and marketing efforts in the flat beer markets of Western Europe.
Investment behind sales, marketing and, as Brito pointed out, innovation is key to enticing ever-more promiscuous drinkers to a premium beer portfolio that is fighting for share of throat with spirits and wine producers. To that end, the upcoming UK launch of Beck’s Vier and InBev’s decision to include Leffe in its stable of global flagship brands, represent decisive moves to grow sales in increasingly tough beer markets.
Nevertheless, it would be a surprise if InBev did not wield the axe in Western Europe again this year. Driving sales in mature and developed markets is one way to increase profits, but it takes time for marketing initiatives to take hold.
A quicker and easier way to boost earnings - and therefore get closer to the EBITDA target - is to cut costs. And ominously, InBev CFO Felipe Dutra did not rule out further cuts, saying the brewer would “continue to identify opportunities for greater efficiencies” across Europe.
Unlike Heineken, which earlier this week outlined its cost-cutting targets for 2006, InBev declined to put a number a precise figure on its cost cuts for the year ahead.
More jobs look set to go in the pursuit of profitability.
S&N and Carlsberg - who's fanning the flames?
22 Feb 2006 15:51
What would our lives be like, as journalists, without rumour or speculation? Certainly, it would be a great deal quieter, and probably a tad duller as well. Sometimes, however, one can’t help feeling that one’s been here before, as M&A talk begins to repeat itself over and over again.
Much as I’d love the job of sitting in a darkened room making some of this stuff up, I can assure you that we here at just-drinks are not in the pot-stirring business. We’re proud to tell you what’s what in the drinks world, and leave the tittle-tattle to journos with more time on their hands.
Speculation over a possible permanent get-together between Scottish & Newcastle and Carlsberg has been around for quite some time now. And every time one of them hits the headlines, it seems the talk gets louder. Indeed, with the two of them working so well together in their Eastern European enterprise, Baltic Beverages Holding, to many it looks like a match made in heaven.
Add to this the fact that, in the last few days, S&N has confirmed that it is looking to close one of its Kronenbourg breweries in France, while Carlsberg will shut its plant in Valby, near Copenhagen, in 2008, and you will understand why some see it as a case of when and not if.
Speaking to just-drinks yesterday (21 February), S&N’s CEO, Tony Froggatt, trotted out a phrase he feels he must say almost daily: “From our point of view, we are very happy with the relationship that we have with Carlsberg right now.” With S&N’s UK operating profit last year rising by an impressive 10.2%, it’s understandable why Froggatt was smiling when fielding our question.
“I’m not sure where these rumours come from,” he added. “They’ve been popping up for years.”
Speaking to the Danish press today, Carlsberg chairman Povl Krogsgaard-Larsen also trashed the talk: “If one can buy Carlsberg? The answer is no. Neither are there thoughts of a merger or merger possibilities.
“The one Carlsberg that is for sale is our beer.”
Of course, the rule of thumb has always been that there’s no smoke without fire – in this instance, however, we could all eventually end up very cold.
Where you're from - as important as where you're at
16 Feb 2006 19:21
This week, news editor Dean Best is in Cuba visiting Pernod Ricard's Havana Club operations.
Provenance. It’s a word used by almost every brand-owner in the drinks industry in the fight for share of voice, but is bandied around so often that it has perhaps lost some of its impact.
But here in the Cuban capital of Havana, just-drinks has this week seen first hand how provenance and heritage can be harnessed to wonderful effect in promoting a brand image that lives long in the minds of consumers.
Havana Club is a brand on the up, with sales leaping 16% last year, making it the world’s third-largest premium rum - and that’s without access to the US, by far the category's biggest market.
Central to that growth has been Havana Club’s use of Cuba to give the brand something unique - and powerful - in the eyes of consumers. Hosting an international cocktail competition in a building that once housed the Cuban Congress was a perfect example. Just-drinks spoke to a number of bartenders who were blown away by the faded grandeur of the setting and believed the brand’s use of Cuba - and, more specifically, Havana - was the perfect way to win over consumers.
Bacardi has long dominated the rum category but even it has felt it necessary to promote the provenance of its flagship brand, its “Welcome to the Latin Quarter” ad campaign in the UK being a case in point. Guinness, arguably one of the industry’s most iconic brands, has succeeded in boosting its provenance with a clever UK marketing campaign promoting the fact that all Guinness sold in the UK is brewed in Dublin, following the closure of its brewery in London.
It’s rare for a brand to have such provenance and Havana Club has been adept in using its strong heritage to attract drinkers. Consumers, particularly in Western markets, are promiscuous in their drinking habits and are clamouring for something new, something different, especially from premium brands.
Consumers are smart - it’s vital that a brand’s claims of heritage or provenance are backed by something real, not just marketing spin.
Companies like InBev, which is set to close its Hoegaarden brewery in Belgium soon, would do well to remember that.
Wine and economics tough mix for Foster's
15 Feb 2006 12:15
It was a confident Trevor O’Hoy who presented Foster’s first half performance to the market yesterday (14 February), and not without good reason. The company reported a 10.5% leap in normalised net profit and perhaps, more importantly, the smooth progress of its integration of Southcorp.
“This is an excellent result in a period of substantial change,” O’Hoy claimed.
Foster’s added that it also remained confident of meeting its financial targets and realising significant further synergies following the Southcorp deal.
And, importantly in such difficult times, all the company’s global wine brands, with the exception of Rosemount, achieved growth. Wolf Blass and Beringer continued to grow volume and revenue, whilst Penfolds and Lindemans stabilised.
But the problems with Rosemount, which suffered a 20% downturn, encapsulate the fears the general market has for the sector. With an already troubling wine surplus and continuing pressure on margins from the global retailers, Australia has turned in a record harvest.
Indeed, despite Foster’s positive results, the market responded by slashing 3% off the world’s second largest winemaker’s share price.
“We are as well placed as any wine company in the world to deal with the surpluses,” chief executive Trevor O'Hoy told Dow Jones Newswires today, however. “It will make it a tough market, but everyone will face it and we'll face it from a better position because we've got greater efficiencies.”
Granted, this is very much a transition period for Foster’s. “In six short months, we’ve taken on the Southcorp integration, continued to develop our unique multi beverage business in Australia and established the world’s leading premium wine portfolio,” O’Hoy said.
That may be true, but Foster’s share performance demonstrates the problems of trying to make money in an industry dictated to by the forces of nature. No amount of restructuring from Foster’s can overcome this problem, or allay the fears of nervous investors.
Cutting through the (Red) Bull
10 Feb 2006 15:54
As a journalist with virtually daily contact with publicly-listed drinks companies around the world, I can’t tell you how often I hear the answer “We have no comment on the matter” to one or more of my questions.
Now, we here at just-drinks understand that there are some things you plc’s can and can’t say when we call you. But, thank the maker that there are still folk out there willing and able to tell it like it is.
Red Bull – we salute you.
“Among the media rubbish that has come to our ears in the 18-year-old history of our company, this takes the biscuit.” This has made my day. Thanks, guys!
Visit http://just-drinks.com/nd.asp?art=29987 to see what I’m talking about.
Quote of the Week?
10 Feb 2006 15:41
Now, I don’t wilfully want to ruin your weekend, Messrs Wine-Makers, but if you want a glimpse into the future, check this quote out:
“Our mission statement is to become the Coke of the wine business in Singapore - we aren’t for the connoisseurs but for the appreciative masses.” - John Chuang, chief executive officer of Petra Foods Limited, the company which imports [yellow tail] into Singapore.
Oops – sorry.
Formula 1 Feedback
08 Feb 2006 12:37
Prior to last week’s missive from Paris, you may recall I voiced my confusion over the trifling matter of alcoholic drinks companies sponsoring Formula 1 teams. To recap, I asked for your opinions on what I felt was a grey area.
Well, talk about stirring up a hornets’ nest. Here are just some of the comments you wrote in with:
“Surely the point about the use of alcohol, or any other product, is about using it in a manner that shows responsibility to one’s own wellbeing and that of others. There is no harm in a racing driver or any other driver relaxing with a drink or two, provided they respect the old ‘eight hours from bottle to throttle’ rule.
“As you say, it’s all very complex and down to personal choices and values. The drinks industry should actively encourage responsible drinking but should not beat itself up if, despite this, its products are misused by a minority. This misuse is part of much broader set of issues about our society and the attitudes that exist within it.”
“I’m really surprised at Diageo because it has always tried to keep to both the spirit and the letter of the law. To align Johnnie Walker with F1 seems counter-intuitive. It’s because government ‘faceless-bureaucrat-out-of-touch-with-consumer-type’ campaigns don’t usually work, that industries, which do have an influence in the sphere of responsible drinking and driving - especially ones with strong, desirable imagery such as JW - should put out clear, uncompromising messages on the issue. To me, it’s a black and white case.”
“Many years ago, I was in charge of marketing communications for Seagram Distillers and every year I turned down requests for sponsorship of fast-moving automobiles. The philosophy then was that alcohol and fast driving don’t go well together. One accident to that car and the headlines will roar ‘Alcohol speedster crashes’. In those days it was a given that regardless of the audience and broader coverage than just the race, it’s not the right place to promote a distilled spirit brand.
“When did that change in the hunt for increasing stock prices? In those days Seagram never got much higher than US$35-$40 a share, possibly because the major stockholders recognised the pitfalls of antisocial behaviour and settled for lower dividends rather than bringing back Prohibition.”
“Formula 1 equates to ‘Bull fights’ justified by cultures that play to emotions not logic. Scientific factual data demonstrates speed and alcohol kill. Politicians take ‘donations’ in return for protection. For the record, smoking is still allowed, even though health costs reflect the community’s cost to support self-destruction. Profits not principles rule.”
Many thanks to those of you who tried to clarify the issue! As I feared, it seems that the only given in this matter is that it will continue to divide the industry.
When the Champers runs out, I'll be here for you
03 Feb 2006 15:59
The UK papers have been carrying stories recently about wealthy bankers blowing their bonuses in London’s bars and restaurants. The opulent spending has proved quite sickening to read, but also quite worrying for France’s Champagne houses.
Sales of jeroboams of Champagne in the UK have been so good in the last few months, that Dom Pérignon has almost run out, according to industry reports.
"We saw a similar pattern like this occurring this time last year,” a spokesman for Dom Pérignon told Decanter. “It seems that when bonuses are announced the city likes to celebrate with as big a bottle of Champagne as possible.”
The average jeroboam from a top champagne house costs over GBP3,000 in many London bars and nightclubs, Decanter noted.
Cheques should be made payable to Olly Wehring, and sent to just-drinks Towers,…
Wine Evolution - Greetings from Paris
01 Feb 2006 17:20
Today’s missive comes to you live and direct from Paris, where I’m attending the seventh annual Wine Evolution conference.
What initially started as a slightly depressing look at the western markets of the UK and Germany yesterday, has cranked up a gear today, as we’ve looked at the developing markets of Asia and the future for wine closures.
What’s been said before about the potential offered by the Chinese and Indian markets (for all beverage producers) doesn’t necessarily need repeating. However, hard and fast data on these countries is still hard to come by. So it was fascinating to hear the opinions of two people on the ground in these markets, both of which were clearly fired up by what could lie ahead.
A closer examination of the opportunities available for those entering the Japanese market, meanwhile, also shows that both the Old and New Worlds have a fair few adventures left ahead of them. Whereas imports into Japan in the first six months of last year slipped by 6%, the impressive performance of Yellow Tail – having sold 220,000 cases in its first year in the country - serves only to confirm the growing power of worldwide wine brands.
Earlier this morning, a lively workshop, including speakers for both natural and synthetic cork also showed that there’s life in the wine industry yet. With both sides arguing their respective corners, and screwcaps also added to the equation, this too is a story that we here at just-drinks will be keeping a close eye on for you.
Wine Evolution 2006 – Quote, unquote II
31 Jan 2006 14:10
Today’s key quotes from the wine industry’s leading lights at this year’s Wine Evolution conference in Paris.
“The impressive performance of Beaujolais Nouveau in Japan in recent times could suggest to the Southern Hemisphere that it too should consider a version of nouveau to highlight its portfolio in Japan.” – Lisa Perrotti-Brown, purchasing manager, Millesimes.
“India’s current per capita wine consumption stands at 0.006 litres – that’s almost 50 times less than China’s! Growth over the last three years, however, has been 25% in volume and 30% in value. 600,000 cases of wine were consumed in India last year; by 2010, India should hit 1.8m cases.” – Rajeev Samant, CEO Sula Vineyards.
“If you consider that movies mirror society, ten years ago you never saw the heroine (in an Indian film) with a glass of wine or a cigarette. You still never see them with a cigarette, but now you often see women with a glass of something and it’s almost always wine.” - Rajeev Samant.
“Our challenge is to defeat something that is measured in nanograms. If you’re going to do that, then you’re going to need science.” – Carlos de Jesus, marketing and communication director, natural cork producer Amorim.
“The debate is only beginning – people nowadays talk about substitutes for cork, not alternatives to cork. That alone shows that the debate is far from over.” – Carlos de Jesus.
“Not all synthetic corks are the same, and this is something that is not clear in the industry. You can have many different raw materials. It’s a question of education.” – Stefano Alderuccio, vice president European Sales, Supreme Corq.
“A lot of wineries seem to be taking a wait-and-see approach when it comes to screwcap – it’s very much a chicken-and-egg scenario. With synthetic corks, however, it would appear that the wine producers considering the closure have already changed to it – it’s maxed out.” Marc Engel, head of wines practice, B/R/S.