Comment - Beer - SABMiller and Foster's: A Better Match than t'Would First Appear
A closer look at the brands involved helps make more sense of SABMiller's move for Foster's Group, argues Pete Brown
The battle between SABMiller and Foster's Group for control of the Australian brewer took a turn in favour of SABMiller last month, when Foster's board approved its takeover offer. Our regular beer commentator, Pete Best, admits to being initially puzzled by SABMiller’s move - and he wasn't the only one.
I know that deals like SABMiller's purchase of Foster's are all about satisfaction for shareholders. Fosters’ shareholders seem pretty satisfied; SABMiller’s perhaps less so. While I don’t really have a working grasp of the ins and outs of boardroom financial deals, I do understand brands – and that’s what made me raise my eyebrows, and read my own quizzical interpretation into what seemed like an enthusiastic, almost self-congratulatory letter from Fosters’ board to its shareholders, followed by a distinctly whiffy effect on SABMiller’s share price.
Prior to this deal, my - totally skewed - subjective view was that SABMiller understood brands better than any of their global peers. This position was held by Interbrew until they became Inbev and seemingly decided that competent brand management was simply another cost to be cut. But SABMiller have shown a thoughtful and increasingly confident touch with premium brands such as Pilsner Urquell and especially Peroni Nastro Azzuro, and behave as if they genuinely care about beer, its culture, its role, meaning and resonance. Unlike Anheuser-Busch Inbev, I feel, SABMiller understands that beer is much more than just another FMCG product.
But Foster’s is, for me, at the other end of the scale. And while Foster’s Group is obviously more than Foster’s the brand, it’s the brand that gives the group its name.
Foster’s beer has been an uncomfortable, problem child since its birth, when the American Foster brothers over-invested in establishing a lager brand in Melbourne in 1888. Squeezed out by their rivals, after less than a year they sold the brewery for less than it had cost them to build, and retreated to the US.
Foster’s continued to flounder, and became part of Carlton United Breweries (CUB). It was positioned as a premium brand, but was dwarfed by stablemates such as Victoria Bitter (VB) and Crown.
There were times when Foster’s almost disappeared altogether, but, in 1971, with a stagnant domestic market, it was launched as a premium international beer – and this saved the brand. It became a cult beer in the US and UK, and this indirectly led back to a surge in popularity in Australia.
But, the aggressive promotion and sponsorship behind this surge cheapened the brand domestically. In a fiercely passionate and patriotic beer-drinking nation, Foster’s is no longer seen as an authentic Australian brand – it’s what other people think of as Australian, not what true Australians drink. Share a beer with any Aussie, and they’ll be quick to distance themselves from the brand.
Foster’s remains an undeniably important brand in the UK (where it’s licensed to Heineken). It’s the second largest beer brand in the country, and preferred to the number one (Carling) in many regions. But, Foster’s lost its premium image long ago. Cheapened and commoditised, it’s often bought in bulk from supermarkets, and routinely drunk with a lemonade ‘top’ in pubs. Over the last three decades, the brand positioning has bounced between celebrating the Australian ‘no worries’ attitude of ‘mateship’, and trying to behave in a more premium fashion. Currently, it has positioned itself as a facilitator of comedy, safely back in 'no worries' territory, which feels very right for the UK brand, but very at odds with an international premium positioning.
It’s closer to this premium area in the US, but again, here it doesn’t quite feel comfortable with itself, attempting to do both mateship and premiumness. Hilariously, the American website claims that ‘unlike other beers’, hops are added at the end of the brewing process to preserve their freshness – a claim that is simultaneously common to almost any beer in the world, and also written by someone who clearly does not understand the brewing process. This wouldn’t matter, were it not for the awkward fact that American premium beer fans pride themselves on geeky product knowledge.
Overall then, Foster’s is a confused brand that doesn’t seem to know who or what it is – a far cry from the tight, thoughtful branding more usually associated with SABMiller. It feels a bit like a thoroughbred racehorse breeder buying a carthorse. And, the hints about opportunities for cost cutting and rationalisation that peppered CEO Graham Mackay’s defence of the purchase… well, it all feels a little worrying.
But of course, I was looking at this deal the wrong way.
A few weeks ago I approached SABMiller about a feature I was writing on the future of global beer brands, and they replied that, rather than focusing on building global brands, chasing economies of scale with ever-spiralling budgets, they were more interested in building regional powerhouses, demonstrating a deep understanding of local cultures, recognising that different beers mean different things to different people in different places.
Seen from this perspective, the acquisition makes a whole lot more sense: the main prize may not be the Foster’s brand at all, but its stablemates. VB, Carlton Draught and Crown represent a sizeable chunk of the Australian beer market, and unlike Foster’s, are regarded with serious affection by the typical Aussie swiller. Crown, in particular, is seen as an undeniably premium brand, and is increasingly noticeable in world beer fridges in quality bars around the world. And, VB, now Australia’s biggest brand, has successfully broken the fierce state-versus-state rivalry that characterises the Australian beer scene to gain widespread love. If anyone was looking for the next brand that could truly capture the spirit of Australian drinking and sell it to the world, this is the brand they would buy.
Australian drinking culture is world famous. It’s distinct from other cultures around the world, and yet familiar, and deeply aspirational to drinkers. There are stories, quirks and customs to exploit, and brands with real authenticity, in a geographical region not previously covered by SABMiller’s portfolio.
As I said earlier, I don’t really get the boardroom financial stuff. And I have no idea if my analysis of what makes this prize interesting is anywhere close to what’s going on in SABMiller’s corporate brain. The Foster’s brand is the most financially important part of the deal. But if it was me in there, I’d be rubbing my hands at how snugly, how naturally, VB and Crown fit into a brand portfolio curated by people who really know what makes global beer tick.
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