The beverage business blog from Olly Wehring
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You think YOUR lot are bad?
17 Mar 2006 15:20
The UK Government has taken quite a beating this week over its handling of the changes to the country’s licensing laws. The revisions, introduced late last year, led finally to a farewell to the UK’s antiquated drinking times (to quote a US tourist – “Is the war still on?”).
The Department for Culture, Media and Sport this week came under fire from a committee of MPs for its “reprehensible” handling of the new regime. The department was accused of letting down licencees for its lack of preparation and poor level of support.
Spare a thought, however, for alcoholic drinks companies importing into Russia, who appear to be at the end of even worse government mishandling. In January, the government introduced new legislation requiring all imported alcohol be sold with new excise duty stamps. Bottles with the old duty stamps are permitted until 1 April, and must be sold by 1 July.
The importers haven’t received the new stamps yet. Today is 17 March.
Foster's develops Asian beer-fear
14 Mar 2006 20:27
Foster’s Group CEO Trevor O’Hoy appears ready to sanction the next significant move in his so-far short tenure at the Australian drinks company, as exclusively revealed by just-drinks on Monday (13 March).
Just a year after creating a global premium wine business with the acquisition of Southcorp, just-drinks understands he has turned his attention to beer, specifically in Asia.
Foster’s brewing operations in China, India, Vietnam and Fiji have improved in recent years but it appears that returns have not been high enough to justify the company holding onto them. A strong presence is vital for generating long-term sustained growth in the emerging beer markets of China and India and though Foster’s has enjoyed some success, notably in India, the company has not been able to compete with the world’s dedicated beer giants.
Foster’s has found it tough to expand its brewing footprint in India, given the dominance of United Breweries and SABMiller, while the company has been left behind in the consolidating Chinese beer market by the likes of InBev and SABMiller.
However, Foster’s remains committed to growing its flagship lager brand in Asia, where beer consumption is among the fastest-growing in the world. The company has enjoyed successful licencing deals on the Foster’s brand in Europe and the US, and analysts believe that a sale of its assets in Asia would include similar arrangements for the region.
So, who would the potential bidders be? Just-drinks understands that a number of global brewers have declared their interest – with the obvious front-runners being SABMiller and Scottish & Newcastle.
SABMiller is keen to build its footprint in India and is understood to be attracted to Foster’s Chinese assets while, earlier this year, it entered the buoyant Vietnamese beer market for the first time. SABMiller also holds the licence to Foster’s in the US. S&N, meanwhile, has driven Foster’s sales in the UK under a similar licencing agreement and would be attracted by the growth of the Foster’s brand in India, where it holds a stake in the country’s largest brewer.
And let’s not discount brewers like Heineken and InBev, who are said to be keen to enter the Indian market and who would also be eyeing Foster’s assets in China closely.
No matter who the buyer, Foster’s O’Hoy knows a sale of the company’s Asian brewing assets is sure to bring in much needed cash, which the company could look to invest behind its burgeoning wine business.
Soft drinks firms face hard choices
08 Mar 2006 16:10
Who’d be a CSD CEO this month? It’s not been easy of late for the carbonated soft drinks companies of the world, but those operating here in the UK are having a rare old time in March.
In spite of trying to make a half empty glass look half full, Britvic last week pointed to the first two months of this year as evidence that soft drinks are struggling in the country.
“Since Christmas, there has been a weakening in the total soft drinks market in the UK,” the company said. “If the soft drinks market shows recovery over the balance of the year as we anticipate, we remain confident of delivering earnings within market expectations, albeit at the lower end.”
Looks like a big if, if the start of 2006 is anything to go by - Britvic also noted that, for the 12 weeks to 25 December, revenue was up by only 1% and operating profit pre-exceptionals rose by 5% compared to the same period last year.
Add to this the recent testing in the country of soft drinks for the cancer-causing chemical benzene, and the alarm bells just get louder.
The Food Standards Agency has been testing 230 soft drinks available in the UK, and found benzene levels of up to eight parts per billion in some brands, eight times the level permitted in drinking water. Naturally, some of the UK press had a field day, in spite of the FSA noting that the levels of benzene were very low and not a concern for public health. Indeed, the British Soft Drinks Association highlighted the comments, adding that there was nothing to worry about.
But something still worries me. Here in the UK, a legal limit has been set for the amount of benzene found in drinking water, but no legal limit exists for the amount of benzene in soft drinks. Oh, and the word ‘cancer’ is in the news stories.
This one needs handling with kid gloves, otherwise the CSD market will turn yet more unpalatable than it currently is.
If you can't beat 'em... buy 'em!
01 Mar 2006 14:23
Characterised by power struggles, legal battles and the odd out-and-out gunfight, the Russian vodka industry is the source of some of the stranger tales to come from the modern drinks industry. My favourite is the one about how, at one point during the Communist era, the proceeds made from the Soviet vodka machine were set aside to single-handedly finance the might of the Red Army.
True or not, this tale demonstrates the sheer size of the industry and why the companies and personalities involved in the country’s vodka market continue to fight so hard for every advantage they can get.
It also shows why Diageo was happy to see the end to one of Russian vodka’s more significant tussles this week - the battle between its Smirnoff brand and the domestic giant Smirnov.
Diageo yesterday joined forces with A 1 Group, a subsidiary of the Russian conglomerate Alfa Group, to form a spirits joint venture, Diageo Distribution. Through the venture, the drinks giant has bought a majority stake in the Smirnov brand, which has seen sales leap more than fourfold in Russia in the last year.
There were as many as four Smirnov/Smirnoff brands on the Russian market at the turn of the century, each locked in a complex legal battle for control of the trademark and each claiming to be the true descendent of Piotr Arsenyevich Smirnov, who opened a distillery in Moscow in the 1860s and later became the official vodka supplier to the tsars.
Diageo’s deal with Alfa finally brings this chapter in Russia vodka’s colourful history to an end and Diageo will be all too happy to have buried the hatchet with such a favourable deal.
In Russia in the last half of 2005, Diageo saw net sales leap by 51% on the back of a 41% rise in volumes, albeit from a low base. The addition of Smirnov to the portfolio gives it the base to move even further forward quickly.
Andrew Morgan, president of Diageo’s European operations, said: “Combining this with Diageo’s expertise in spirits’ marketing means that this venture creates a strong foundation for our joint ambition to become the leading spirits business in this market.”
What remains unclear, is how two brands, for so long at loggerheads over trademark infringements, will be marketed together under the same portfolio.
“It is too soon to say what plans we have for the two brands,” was all a Diageo spokesperson could tell just-drinks. “Both have a significant Russian heritage. Once we get the Russian anti-monopoly regulatory clearance on the deal, we’ll develop a strategy that will allows us to take advantage of this Russian heritage.”
Churchill once said: “Russia is a riddle wrapped in a mystery inside an enigma.” Hopefully the situation with the country’s vodka industry will become clearer one day soon.
Most appropriate name for a drink - the race begins
27 Feb 2006 15:43
Since joining just-drinks, my appreciation of whisk(e)y has, naturally, gone through the roof. I love the stuff. Although, a new Scotch may have to pass me by.
The Bruichladdich distillery on Islay has produced a distilled whisky with an eye-watering alcoholic content of 92%.
Bruichladdich managing director Mark Reynier said the distillery was doing it as a bit of fun and it was unlikely to be repeated.
Bruichladdich plans to produce 5,000 bottles of ‘usquebaugh-baul’ as it is known – which is probably the sound I’d make after a dram or two of it.
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.