Cheers! But drinkers put breweries over a barrel

By DITA DE BONI

Faced with the dizzying array of foreign, local, organic, lite or craft varieties in your average supermarket display cabinet, anyone would think beer had entered a bigger renaissance period than flared pants and platform shoes combined.

The reality, however, is well masked behind big displays and heavy discounts. Beer consumption is on a steady decline worldwide, and the industry behind the product has had to undergo a seismic shift in both structure and attitude to retain drinkers and hook in new business.

Breweries are finding two elements crucial to keeping themselves relevant: the first, comprehensive distribution arrangements; the second, sophisticated branding.

The companies that have not moved with increasingly complex consumer trends are finding themselves swallowed whole or forced to cede business to those that appeal to the modern drinker's need for what is known to marketers and strategists as "affordable luxury."

Essentially, consumers are drinking less and lighter. In New Zealand, those drinking beer are no longer just the stereotypical, boofish young male, but include the discerning specialist and the female household shopper.

The beer proposition is competing for a "share of table" with wine or even coffee.

To keep beer in front of consumers, comprehensive distribution through bars, outlets and supermarkets is critical.

Against this backdrop, breweries have been merging and acquiring smaller entities to secure international channels for their products. In 1998, the top 20 international brewing groups, led by Budweiser producer Anheuser-Busch, Dutch-based Heineken and Stella Artois-maker Interbrew, accounted for 57 per cent of global sales and that percentage continues to climb, say analysts.

The spread of brewing giants through established and emerging markets is also pushing out second-tier players. British giants Whitbread and Bass are about to quit their beer-making operations, with Whitbread to sell almost 250 years of brewing history to Interbrew for about 400 million ($1333 million) and Bass looking to offload its 2 billon brewing operation to concentrate on its hotel and pub business.

Taken as a world snapshot, the volume of beer consumed increased 1.4 per cent to reach about 130 billion litres last year, although markets such as Belgium, Denmark and Holland experienced sharp declines. Before 1998, Asia and specifically China, which is set to become the world's largest beer market, had provided the largest growth in beer consumption. Economic difficulties in Asia have caused growth in the region to be overtaken by growth in the Russian market. Russia's brand Baltika is the fastest-growing brand in Europe.

In New Zealand, average beer consumption has mirrored declines in the United States, Britain and Australia, falling about 2 per cent annually. New Zealanders drink just over three litres of beer per capita per year as opposed to nearly five litres 10 years ago.

But the past 10 years have coupled declining interest in beer with enhanced availability. Whereas in 1989 there were only 6000 licensed liquor outlets, in 1999 that figure reached almost 14,000, climbing further into 2000 with the product's introduction to supermarkets.

In New Zealand the combined factors of availability and huge growth in premium products have meant no drop in the value of the market.

Which is all good news for the country's two largest brewers, DB and Lion Nathan. The two giants continue to compete tightly: Lion taking just over 50 per cent of the total market and just over 60 per cent in the two-brewer race.

Both have experienced a drop in their mainstream brews (Lion Red and DB Draught) alongside a climb in popularity of premium-end products such as Steinlager (Lion) and Monteiths (DB) and the phenomenal success of adopted imports Heineken (DB) and Stella Artois (Lion).

Lion Nathan did not want to contribute its thoughts to an article which it believed would compare the two entities.

But the soon-to-be streamlined DB, which is set to divest itself of the Corbans Wines business this year, believes that even given the declining domestic market there is room to grow through both hooking in new consumers and gaining market share.

Alan Gourdie, DB Breweries sales and marketing manager, concurs that the competitive edge of a brewery will be its attention to brand management and a commitment to understanding a fragmenting customer base.

"What is critical is the building of value in the brand portfolio," he says.

"Even in a market that has slowed, the engine room of any business is its brands and if you've got strong brands you've got a strong portfolio and that is what will keep you successful."

Mr Gourdie says breweries are looking to develop national brands - such as DB's Export Gold - following the success of Heineken and Stella Artois.

Heineken's 75 per cent ownership of DB has had a strong influence on the company, he says, with the Dutch brewer - the largest in Europe - imparting "best practices" to DB and allowing it access to formal and informal networks to the company's 110 breweries in 50 countries.

The push to secure distribution channels is happening on both a global and domestic level.

In New Zealand, supermarket sales of beer have widened distribution and secured better access to a new demographic: the female household shopper.

DB has largely removed itself from distribution of any kind, disbanding spirits arm Allied in March and selling the company's liquor retail stores and three on-premises wholesaling businesses to senior managers in February.

On the other hand, Lion Nathan recently blocked Australian brewer Fosters' access to local distribution by buying up almost 20 per cent of New Zealand's largest wine producer, Montana.

Before the buy-up, Montana had announced it would distribute about 70 Lion-aligned spirits, beers and pre-mixed liquors to on-licence premises.