Comment - Corby Distilleries Calls Time on Seagram Coolers
Corby Distilleries offloads Seagram Coolers
After a long battle against falling consumer demand, Corby has offloaded the Canadian licence for Seagram Coolers to Brick Brewing for CAD7.3m (US$7.4m), to see if the Ontario-based brewer can do any better with the RTD brand.
Seagram Coolers has been a great, lumbering millstone around Corby's neck for several years, almost since the Canadian group acquired the brand in 2006. An uneasy relationship culminated in a CAD9.5m impairment charge on the brand, which caused Corby's net profits to drop by a third in its last fiscal year. In the year to the end of June last year, Seagram volumes fell by 17% to around 265,000 nine-litre cases.
Towards the end of that year, Corby relaunched Seagram Coolers in an effort to rejuvenate the brand with new flavours and a new look. However, volumes continued to tumble in the first half of the Corby's current fiscal year, by 32%, but the group said that this fall reflected its decision to cut volumes as part of the relaunch.
At the same time, Corby hinted that Seagram could continue to hamper its business for some time. When one considers that Seagram Coolers' profitability is relatively low in Corby's portfolio, Brick Brewing's interest looks to have been akin to the arrival of a white knight at the door to Corby's boardroom.
Corby's CEO and president, Patrick O'Driscoll, said this week: "Although we were excited by the prospects of the brand's rejuvenation strategy, we recognised that it would require continued dedication of our resources." He said that Seagram would benefit from being a big fish in a small pond at Brick Brewing.
The premium, craft brewer has large amounts of excess capacity and has spent the last year searching for fresh business, even though its beer brands have been outselling the likes of Molson Coors and Labatt in Canada in volume terms. In the last fiscal year for which figures are currently available, to the end of January 2010, Brick Brewing was only using 57% of its total volume capacity.
Seagram Coolers is expected to use around 10% of the company's spare capacity, it said this week. In addition, Seagram's nationwide reach will help Brick Brewing to build a Canada-wide distribution network.
However, while Brick also has experience of RTD coolers and will give Seagram Coolers a lot more focus than Corby, there remain risks. The jury is still out on whether Corby's relaunch will rekindle consumer thirst for the brand. Any further erosion of Seagram Coolers' brand value would have much more serious financial consequences for Brick Brewing than it would for Corby.
That said, Brick Brewing's investors reacted warmly to the deal, sending its share price up by 6% yesterday (17 March) amid the company's forecast that Seagram Coolers will add CAD1m to group EBITDA during its first year of integration.
"The Seagram Coolers brands complement and expand Brick's portfolio and will strongly position us for growth in both beer and the cooler category," said Brick Brewing's president and CEO, George Croft.
The group will need to work swiftly to turn this optimism into concrete results.
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