Discounts and changes cut into Lion profits

Peter Kean listens to Sydney-based chief executive Rob Murray. Finance officer Jamie Tomlinson, right, is beside him. Picture / Paul Estcourt

Fierce competition in the New Zealand beer market led by severe discounting at grocery stores has hit Lion Nathan's Kiwi operations hard.

Chief executive Rob Murray yesterday called the New Zealand results disappointing and warned shareholders to expect flat profit from the unit for the next two to three years.

Lion Nathan's New Zealand operating profit declined 17.2 per cent to $75.7 million for the 2005 year.

The company was not only hurt in the take-home beer market. Legislative changes such as the smoking ban made a dent in sales at pubs and restaurants, a key component of Lion's business.

It is unclear whether the beer price war will continue.

Peter Kean, managing director of the New Zealand unit, would not comment, saying only that prices were up to retailers. While the overall volume of beer consumed in this country has declined considerably in recent years - from 120 litres per person in 1987 to about 78 litres today - the choice had moved from traditional to premium brands.

Lion's premium beer labels such as Steinlager and Stella Artois performed well, with 10 per cent volume growth over last year. But its traditional beers such as Speight's and Lion Red suffered some market share loss.

Overall, Kean said, Lion Nathan still held more than 50 per cent of the New Zealand beer market. He stopped short of saying Lion Nathan was losing market share to rivals such as DB Breweries and its brands like Tui and Heineken.

"Five of our top six brands are in growth. We're happy with our share," said Kean.

DB's managing director, Brian Blake, said there was no question Lion Nathan had lost market share to DB and other players. Blake estimates that Lion's share of the beer market has dropped about 3 per cent to 51 per cent. By contrast, DB has gained about 4 per cent and now held 38 per cent of the beer market.

Blake blames Lion Nathan for the deep discounting in the take-home beer market.

"Lion Nathan is pulling the whole New Zealand market down and if the industry wants to accept profitless prosperity as the key objective then we're heading in the right direction," said Blake.

DB is wholly owned by Singapore's Asia Pacific Breweries, which is jointly owned by Heineken and Fraser & Neave.

Kean said a full review of Lion Nathan's New Zealand operation was completed in the second half of the year and the company was in the midst of implementing changes.

One was to create a new group marketing director to oversee the unit's full range of beverages.

The company will continue to look at lowering costs at its New Zealand operation and has promised to reinvest the savings into marketing of its core and premium brands.

Lion Nathan's annual net profit, including Kiwi and Aussie operations, was A$224.8 million, up 10.9 per cent on the previous year.