Australian beer and wine group Lion Nathan is expected to announce a move into ready-to-drink spirits next week. David Robertson assesses the options available to Lion as it seeks to emulate the success of its rival Foster's Group in the RTD sector.

Lion Nathan, which owns the Tooheys New and Castlemaine XXXX beer brands in Australia, is hoping to announce details of its move into spirits next week.

The Sydney-based company will deliver its half-year results on 18 May and chief executive Rob Murray is understood to want to use this opportunity to unveil the first details of Lion's spirits strategy.

The company wants to emulate the success that its close rival Fosters Group has had with Cougar - a bourbon and rum ready-to-drink (RTD) mix - but it has delayed an announcement until the strategy is complete. An earlier move by Lion into RTDs failed because the products were rushed and poorly-formulated.

Lion is understood to have considered buying a spirit brand or using a brand partnership to launch its new RTD. But sources close to the company hint that it now favours launching an entirely new product, which would allow it to build the marketing strategy from the floor up. This new product would almost certainly be a dark spirit, possibly bourbon and rum like Cougar.

Most previous RTD launches have taken an established spirit brand and converted it into a mix, but Lion is thought to be considering reversing this process, starting with an RTD and launching a stand-alone spirit later.

An organic approach would also suit Lion better from a financial point of view.
Murray has already admitted that the roll-out of the new spirit, plus increased marketing spend on other core brands, will put a strain on Lion's finances. Earnings growth is expected to halve in this coming financial year to 5%.

As the company is currently looking to invest any spare cash in promoting beer brands, an acquisition would seem unlikely at this stage.

Lion may well have been interested in New Zealand-based Independent Liquor, which already has a stable of successful RTDs, but this company is not believed to be on the market.

Another possible acquisition would be 42 Below, a Kiwi whisky. 42 Below already has a bottling arrangement with Lion and would sit well beside Grey Goose, which Lion distributes in Australasia. But 42 Below is considered too upmarket to turn into an RTD and is therefore unlikely to be Lion's first spirit offering.

A brand partnership also seems unlikely as Lion already has distribution deals with Bacardi-Martini and Archers - deals which are thought to limit the company's ability to seek business with other multi-national brands.

A source close to the company said: "We want to have something to tell people at our results but the most important thing is getting our strategy right. We have been impressed by what Cougar has done in just three years and it is a lesson that you can create something from scratch and make it a success."

While it seems likely that Murray will announce details of the RTD move next week, it is possible that he will wait until an analyst presentation scheduled for June.