Can Bliss put back the sparkle in S&N?

Scottish Courage says there is much demand for its new wine-based drink, Bliss, as the packaged spirits sector is in decline. But the industry doubts RTD is the right way for the brewery to boost its flagging fortunes. By Sonoo Singh

The UK’s largest brewer Scottish Courage is on a mission to fill up its coffers by entering a new drinks category as demand for beer dries up.

The company, which brews John Smith’s, is entering the alcoholic ready-to-drink (RTD) market for the first time with the launch of Bliss (MW last week). The brewery claims Bliss is the first wine-based premium packaged drink, and says it will rival Bacardi Breezer and Smirnoff Ice. But critics believe the initiative may just be grandstanding for the brewery’s shareholders.

Parent company Scottish & Newcastle is beginning to look like an anachronism in the current climate. Unlike rivals Bass and Whitbread, it has chosen to retain much of its managed estate of 1,500 pubs after a limited disposal of pubs in Scotland and the North-east. New chief executive Tony Froggatt, who joined from Seagram where he was executive president for Europe, the Middle East and Africa, faces the challenge of deciding whether S&N is in the pubs or the brewing business.

Historically, the drinks market has been driven by innovations. Beer, as the largest alcoholic drinks sector, has accounted for a steady stream of new launches, but after a series of dry and “lite” new products, activity appears to have gone flat.

In terms of market value, the UK beer market has fallen from £19.8bn in 1997 to £12.1bn in 2002, according to Datamonitor. Volume sales have fallen from 6.7 billion litres to 6.4 billion litres. Mintel adds that the beer market is not expected to show any real or consistent growth in terms of volume until 2006.

Scottish Courage admits that declining beer sales has made it look outside its core market. Marketing manager for innovation Fiona Vernon says: “Not only has the beer market been in slow decline in recent years, but there are also fewer brand-loyal consumers. We want to target consumers who don’t drink beer, for instance women.”

However, insiders suggest the launch of Bliss is simply an appeasement package to be showcased in S&N’s next annual results, due to be announced this summer.

Investment analyst at Teather & Greenwood, Nigel Popham, says: “Scottish Courage’s move into the RTD market, though sensible, is a bit late in the day. Rival brewers have already made in-roads in that sector. But a launch such as Bliss is unlikely to make a significant impact into Scottish Courage’s profits.” Popham says the company needs to focus on its brewing operations and sell off its pub business in order to reduce debts.

In October last year, S&N reported an increase in its debts to £3.1bn from £1.6bn in October 2001, partly as a result of paying £1.5bn to Danone for its Brasseries Kronenbourg business.

Another analyst adds: “The brewer needs to set its house in order first before setting out into new markets. My worry is that it wants to keep the beer trade within itself at a time when market conditions are tough. S&N will have to find ways to raise cash by divesting its pub business.”

Shares at S&N tumbled seven per cent to 382.5p in February when the brewer revealed that the reorganisation of the Scottish Courage supply chain had resulted in greaterthan-expected disruption costs, delaying the time when savings could be made. The company also announced that profits were under pressure from a general slowdown in high street spending.

But there are signs that the company may have taken analysts concerns on board as last week reports suggested it was in discussions with Japanese bank Nomura, over the sale of up to 700 pubs, which the brewer would then manage under long-term contracts.

A spokesman for Scottish Courage defends the launch of Bliss and says: “We have identified an opportunity in the market, since Bliss is the first wine-based RTD in the market. Premium packaged spirits (PPS) have been in decline for some time and our research shows that consumers want something different.”

He adds that the company is still focused on its core beer brands and admits that as a company, Scottish Courage has not flooded the market with new product launches.

One rival points out that Scottish Courage’s regional beer brand McEwan’s was forced to ditch its SPA variant after it was rejected by the nation’s drinkers. Launched in 2000, McEwan’s SPA was a hybrid of lager and ale designed to attract young drinkers, but it failed to catch on, despite the support of a £2m advertising campaign.

Heineken UK marketing director Leslie Meredith says: “It is very important to create something newsworthy in the beer market, and have the drinkers talk about it.” Meredith is responsible for the launch of a new premium-strength brew this year, Heineken 5%, which made headlines when the Thresher Group refused to sell it over issues of pricing.

The company is also planning to launch premium aluminum Heineken bottles in July in nightclubs, in a bid to “reinvent” the brewing industry further.

Scottish Courage defends its track record in marketing, packaging and product innovation. Its new John Smith’s advertising with comedian Peter Kay has replaced the No-Nonsense cardboard man, and Foster’s and Foster’s Export have been given new packaging and bottle formats. Last year it also launched a Beer With Food initiative, which included a partnership with Guardian Newspapers products. Other activities included the introduction of Directors in a 50cl bottle.

Scottish Courage isn’t the first to attempt to give beer a trendier image. A spokesman for Coors says: “The brewing industry has been great when it comes to building [individual] brands, but we haven’t been so good at building the category.” Last year the company’s marketing director, Mark Hunter, spearheaded the campaign “Beer Naturally”, which developed press advertising aimed at positioning beers as “trendy and healthy”. Coors was also the first brewer in the market to break into the RTD sector – eight years ago it launched Hooch, an alcoholic lemonade.

Scottish Courage was created in 1995 when Scottish & Newcastle bought Courage. At the time, analysts predicted that it would be unlikely that the company keep all its brands, including global brands Kronenbourg and Foster’s and regional brands such as Theakston’s and Newcastle, in its portfolio.

Analysts believe Froggatt would now do best to concentrate on putting innovation back into that brewing side of the business rather than launching new ventures such as Bliss.

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