Scottish Courage chairman Guy Dickson explained last week’s management shake-up at the brewing giant (MW October 23) with these words: “It is time to give more attention to the future strategic direction of the company, both in the UK and further afield.”
But what Dickson did not reveal was that Scottish Courage, whose parent is Scottish & Newcastle, is planning a major assault on the international beer market, and is to take on Bass’s worldwide operation in a battle for foreign drinkers. It has been left to industry observers to fill in the details and suggest that licensing deals with Beck’s Bier, Kronenbourg and Foster’s could grow into takeovers.
Richard Gibb, director of S&N corporate affairs, refuses to comment on speculation about an assault on international markets. But he agrees: “We have about as much of the British beer business as we’ll ever get, so we must expand overseas. But you are over-egging our realistic level of ambition at the moment.”
He rules out an imminent acquisition: “We wish to develop our European market where we are the controller of our own destiny [through the S&N international division].”
The strategic shift forms the second phase of SC’s long-term strategy. The first phase, which began with the 425m merger between S&N and Courage in August 1995, was to build an array of core brands strong enough to carry the company through the tough beer supply negotiations with UK pub groups which start next year. The merger created savings of 46m.
Just as Dickson handed the job of directing the first development phase to the former Courage marketing director John Nicolson, he has put the same man in charge of the international push.
Nicolson has been appointed as corporate development director within S&N. He will report to S&N group chief executive Brian Stewart, and the company says he will have responsibility for “strategic affairs and mergers and acquisitions”.
Some analysts have suggested that, because of the renegotiated beer supply deals, S&N could lose as much as ten per cent of its volume in the short term (MW October 23). As a result, it will need fresh international outlets to compensate for lost UK volume.
It is thought that S&N is considering several options for building the international beer business. Its 1996 annual report shows that international beer sales rose to 400,000 barrels, spearheaded by Newcastle Brown Ale – international sales of which have risen more than 40 per cent – and Foster’s.
The UK brewing industry is attempting to position British ales as niche premium products in foreign markets. So far, Bass has led the way with its Bass Brewers International division, though it has yet to make this pay off in a profitable way. S&N lacks an international distribution network, so if it is to make headway in selling its brands across Europe, the US and Asia, it will have to consider buying such a network.
S&N already has links across Europe with its licensed brands, and one observer says: “The aim is to convert the flags on the map into profit centres. Quite how it does this is another question.”
One way is to buy out the family-owned Beck’s Bier operation, based in Bremen, Germany – S&N already distributes the beer in the UK. Beck’s Bier has distribution links with the US and in parts of Europe, and would make a strong vehicle for international expansion. While there is no evidence that Beck’s is for sale, S&N could make an offer which would be difficult to refuse.
Or S&N could use the Foster’s network. It distributes the Australian-owned lager across Europe, giving it access to most of the major markets, and providing a suitable beach-head to enter these markets. Nicolson could also opt to buy another of S&N’s licensed brands, such as the Danone-owned Kronenbourg.
Last week’s management reshuffle was the watershed that observers of the UK beer market have been waiting for. The question has long been posed as to how SC would achieve continued profits growth once it had finished reaping the benefits of the cost-cutting that drove the merger in the first place.
In the rejig, Dickson split his own role of chairman and managing director, and brought in the Courage managing director Graham Kendrick to head a new “executive committee” to oversee the operational side of the business. This left Dickson free to carry on the onerous task of liaising with the owners of SC’s licensed brands: Beck’s Bier, Holsten, Foster’s and Kronenbourg.
It was a job Dickson had undertaken jointly with Nicolson as marketing director. Now Nicolson will be replaced as UK marketing director by Collin Wood, trading director of northern pub sales.
SC’s timing in announcing the reorganisation is significant. It comes four months after President of the Board of Trade Margaret Beckett knocked back Bass’s proposal to take over Carlsberg-Tetley. The ruling means there is no possibility of the top four UK brewers increasing their market share through acquiring each other. SC, Bass, Carlsberg-Tetley and Whitbread will have to fight it out on marketing their products more effectively.
The brewers are fighting a battle over the so-called “own-label” brands – the beers that the brewers distribute through their own tied estates, but which have weak distribution beyond these. The likes of Castlemaine XXXX, Ansells and Skol fall into this category, and it is estimated that the own-label market accounts for about a third of the on-trade market.
“It was an issue that had to be a factor after the merger,” says Gibb. “We said we would focus on the key brands and we have. Volume is rapidly concentrating down to fewer brands. Our major lines are increasing their share of the total volume.”
According to S&N’s final results in July, beer volumes were down three per cent, compared with the market decline of one per cent. “Growth in turnover has been derived from the performance of our leading brands and the swing of the consumer to quality products.”
The aim of the brewers is to push a set of core brands, supported with weighty ad budgets, in order to get consumers to trade up from cheaper “own-label” beers. In the case of SC, this means the licensed lagers, as well as John Smith’s ale and Beamish Red and Black.
The battle is on to make these brands essential on every bar because, when the beer supply agreements come up for review next year, it will be the strongest brands that win distribution. SC’s tie with Inntrepreneur will be cut next March, when supply deals for Allied Domecq Inns and Greenalls will also be up for grabs. SC’s policy of putting resources behind key brands has been caused by the expectation of these talks. It means continued hefty spending on the core brands, although the secondary brands will no doubt be left to fade away.
The reorganisation of SC’s management is a crucial indicator of the changes about to hit the UK brewing market. With the right directors in the right places, SC believes it can use its leading position to become a major international player and also continue its dominance of the UK market.