DB quits discounting battle

DB Breweries will try to restore its profit margins by stopping discounting beer so heavily.

Brian Blake, DB managing director, said yesterday the Singapore-owned brewer would put an end to the deepest discounts of its beers, even if it meant losing market share.

"Over the past nine months the whole beer market's been very aggressive," he said.

"There's been a drop off in margins in the last year." (Blake declined to specify how much profit margins have been eroded).

"Someone at some stage has to put their hand up and try to pull some margin back into the market so we've decided to do that, even at the cost of losing market share," he said.

"We're just not happy selling our brands at those sorts of margins."

He said Heineken, DB's premium beer, which usually retailed at $23.45 per dozen, had sold in supermarkets for as little as $16.95.

"In terms of the image of a premium brand we don't want to be at those prices."

DB would not stop discounting altogether, said Blake. Heineken could retail on special at $18.95, for instance, "but we certainly don't want it going down to the prices we've seen it at recently".

According to figures from late last year, DB has 38 per cent of the beer market in New Zealand with Lion Nathan holding 51 per cent.

Blake said discounting by the three major beer companies - DB, Lion Nathan and Independent Distillers - had caused the latest price drops.

"You've got three very aggressive players in the market."

Further, the two main supermarket chains - Progressive Enterprises and Foodstuffs - were driving down prices.

"You've got quite a few players that are adding to the intensity of competition in that area," he said.

The brewer had already informed retailers about the change.

"DB has no desire to become a discount beer seller to the detriment of its brands and the beer market," Blake said in a letter to retailers last month. "We intend to take a longer-term view."

A spokeswoman for Lion refused to comment on pricing yesterday.

Blake said he was unsure how DB's competitors would react.

"As a company we're going to lift margins for our brands," he said.

"If the whole market comes with us that's great, because everyone then starts making some money out of the category. I'm not too sure that's the situation at present."

DB, which was bought by Singapore's Asia Pacific Breweries in 2004, reported a pre-tax profit of S$55.3 million in the last September year, up from S$46.2 million previously, but Blake complained at the time about discounting.

Lion Nathan's operating profit in New Zealand in the September year was down 17 per cent to $75.7 million.

Profitable drops

DB Breweries

Owned by Singapore's Asia Pacific Breweries.
Made a pre-tax profit of S$55.3 million in its last financial year.
Main brands include Heineken, DB and Monteith's.

Lion Nathan

Based in Australia.
Made an operating profit in New Zealand of $75.7 million in its last financial year.
Main brands include Steinlager, Stella Artois, Speight's and Lion Red.