New man at S&N must show Courage

The UK’s largest brewer is saturated with brands following its takeover of Kronenbourg. But can Tony McGrath, the company’s new marketing director, bring any of them to global prominence?

When Tony McGrath takes up his position as marketing director of the UK’s largest brewer, Scottish Courage, this week he will have to perform a number of delicate balancing acts.

These include overseeing the culling of SC’s bulging portfolio of beer brands without alienating the “beer barons”, who still exercise considerable power within the company.

He will also be under pressure to build SC’s share of a beer market in gradual decline, not easy given that sales of Fosters, the top-selling beer in his portfolio, are languishing at one-third of those of market leader Stella Artois.

What is more, McGrath, whose previous roles have included a stint as managing director of Häagen-Dazs for Northern Europe, will be under constant scrutiny to ensure that his UK branding plans fit into an international strategy.

Just before McGrath’s appointment was announced, the company was forced to deny reports that it has been admonished by shareholders for failing to ditch its pub division so that it could concentrate exclusively on brewing.

Industry insiders say that the company faces an uphill struggle to reposition itself as an international rather than a regional player and avoid being swallowed by a rival in the next five years.

SC’s holding company, Scottish & Newcastle (S&N), is undergoing its first major restructure since it acquired Courage in 1996, and the pressure will be on McGrath to build the UK market share of Scottish Courage’s brands.

While sales of its best-selling brand, Fosters, have grown by 22 per cent in the past year to £88.8m, it is still in fourth place behind Stella Artois, Carling and Budweiser with sales running at only a third of Interbrew’s top-selling brand, which brought in £244.5m last year.

If it is to transform itself into a global company along the lines of Heineken or Anheuser-Busch, S&N will have to reassess how it allocates its marketing resources, and analysts predict that the bulk of the spending will be used to push brands with international potential, such as Kronenbourg, Fosters and John Smith’s.

Smaller regional brands such as McEwan’s, Younger’s and Theakston’s may well fall by the wayside or even be dropped from the company’s brand portfolio, which is already reaching bursting point following the acquisition of Kronenbourg last year.

Scottish Courage last year spent £8.4m on advertising for Fosters, £5.5m on Kronenbourg and almost £9m on John Smith’s. At the same time, it spent £750,000 on advertising McEwan’s lager and SPA ale. Neither Young’s nor Theakston’s were supported by advertising.

“The problem S&N faces is that it has many brands but very few have true international potential,” says one industry insider.

“Most of its brands are UK-particular or third-party brands which it doesn’t own, such as Beck’s and Miller. While it dominates the UK market, internationally it only really has one brand with potential for growth – Kronenbourg. Even then it faces an uphill battle, as Kronenbourg is more of a regional player. In its UK advertising it is very much positioned as a French brand and I don’t know how much appeal it will have outside Western Europe,” adds the source.

S&N is also looking at launching in the UK some of the beer brands it acquired when it bought Kronenbourg from French company Danone as well as building sales of its own beer brands, notably Fosters lager, in France and Belgium.

The company is reviewing its newly-acquired portfolio, which includes continental brands such as Kanterbrau, Maes, Cristal, Grimsbergen, Judas and Burgs.

While the positioning of Kronenbourg as a French premium lager has worked well in the UK, where it is Scottish Courage’s second-biggest-selling brand, it is doubtful whether this strategy would work in other European markets.

The company says it is looking at making further acquisitions along similar lines to the 49 per cent stake it acquired in Portuguese beer company Central de Cervejas last year.

Despite criticism from City analysts that S&N has failed to embrace vertical integration and to adapt to the changing beer market as quickly as its rivals, the company insists that it is continuing to build market share in the UK.

“We are increasing our market share slowly, we are more concerned with value share than volume. What we want to do is to develop premium brands,” says a spokesman for the company.

“Although there is a possibility of introducing continental brands to the UK and UK brands to other markets as a result of the acquisition, we are not rushing to do that.”

But some analysts claim that, unless the company pulls out of pubs completely and concentrates on brewing, it may not have the resources to achieve its goals in the international arena.

“While most other players are focusing on brewing, S&N still wants to have a foot in both camps. If it is going to develop into an international brewer it should be focusing on that. Everybody else has moved on and S&N needs to look at vertical integration in the UK.”

As one industry insider puts it: “S&N has a big challenge ahead of it but I think it would be a sorry state of affairs if the UK, which is the second biggest market in Europe, cannot manage to produce an international brewer.”