Posts Tagged ‘beer’

The tyranny of distance (for Aussie beer drinkers)

September 28, 2010

One of the joys (and frustrations) of travelling is seeing new and/or different business ideas executed well.

Our apartment in Rome was just a couple of doors away from perhaps the best executed specialist beer bar I’ve seen outside of Belgium.  The hole in the wall, with the cool moniker of Ma Che Siete Venuti a Fà (which translates roughly as “what the hell are you doing here?”), was a true revelation.

Italian beer barI’d never really picked up a beer culture in Italy beyond the pale, insipid Peroni etc one sees everywhere. This place turned that impression on its head.  Here were 14 taps of artisinal beers from nearby lands (Belgium, Netherlands, Germany, Denmark, Britain) and the ‘hood (i.e. Italy), all fantastic quality, diverse in style, well-explained by the friendly barman, willing to give you a taste and enthuse about the offerings.  And, this was all delivered at competitive prices (nothing more than 6 Euro a pint).

The set up was decidely unpretentious, with most beers consumed standing out in the small, cobbled street or perched on the small number of stools.  There was no food on offer, but plenty within staggering distance.  No one was over-inebriated. All seemed most happy discussing the beer and the football on tv.

This is exactly what I’d love to see in Melbourne.  But the problem is one of distance and the associated costs.  No one could get such beers in kegs to Australia quick enough or cheap enough (especially once excise is hurled on top), so the variety and quality just wouldn’t be there.  What we do end up with is such European beers (in bottles) that are priced out of reach of all but the most eager/profligate, and/or the compulsion to pair such beers with overpriced food as some sort of destination venue.

The other option is cheerleading for the local microbrewers and trying to build a broad enough suite of offerings (which the Local Taphouse has made a good fist of in Melbourne).

Interestingly, that was the strategy of the bar across the road in Rome.  It only offered Italian microbrews (including some amazing stuff in 750ml bottles, such as collaboration between an Italian mob and US brewer Dogfish Head called My Antonia), but was smart enough to offer loads of tables, and excellent, cheap food (including the best pizza we’ve had in Italy this trip). This strategy worked extremely well due to the spillover from the destination bar.

I’d travel a long way for Ma Che Siete Venuti a Fà. Many others would too – it has topped the global ranking tables at the Ratebeer website in the past. Unfortunately, no bar in Australia can make such a claim.

Fostering a Chinese wine giant?

July 28, 2010

While we all wait eagerly to see who might buy up the soon-to-be-untangled Foster’s beer business (see this piece for a recent update of the contenders), it is possible that the more fascinating and globally significant acquisition might actually occur on the wine side of the company’s separation.

An Australian article last month got me looking into the prospect of a Chinese takeover of some or all of the forthcoming wine business (renamed as Treasury Wine Estates).  The article mentions that China’s Bright Foods, failed bidder for CSR’s sugar business, has sounded out Foster’s about the firm’s “Hunter Valley operations focused on the blue-chip Rosemount brand”.

I was a little unclear on the size and scale of China’s wine market.  I have certainly heard the usual extravagant claims that it could be an enormous untapped opportunity for Australian exporters, but what I was unaware of was the actual scale of existing domestic production.

According to this academic study China is already the 6th largest producer of wine in the world (at 13,005m hectalitres in 2008).  That’s more than Australia (11,700m), South Africa (9,890m), Chile (7,860m) and NZ (1,700m).  Chinese production grew 17% between 2004-8, while pretty much all ahead and around them on the list experienced pretty hefty declines in volumes (e.g. Australia fell 20%, France 25%).

Certainly China is not currently a significant exporter of wine (unlike most of the other major producer nations), and the initial focus of any foreign acquisitions will likely be on servicing the Chinese market with higher quality imports.

The longer-term picture is where it gets interesting, however. Picking up a firm with strong international brands (which Bright Foods would certainly be doing if they secured some/all of Treasury) would allow the Chinese firm to build up much-needed expertise in marketing and distributing beyond Chinese shores.

This could well be the birth of a new wine giant.

(As an aside, there is an unfortunate irony to the possibility of a big chunk of Foster’s shifting into Chinese hands, as the firm had a very torrid time from 1993-2006 trying to build a beer presence in the country).

Fosters’ splitting headache

May 27, 2010

In one of the least surprising and most long awaited shock announcements, Foster’s is to split into two separately listed beer and wine businesses.

This pretty much brings to an end the financial carnage emanating from Foster’s purchase of Southcorp Wines for $3.7b back in 2005. This was a classic case of overestimating synergies (and commitment bias, whereby the firm paid $400m than their initial offer rather than walk away from the deal). The firm’s original estimates were for $270m-300m in efficiency gains within the first three years.  These never seem to have eventuated, and the firm got hit with a further whammy in terms of the Aussie dollar heading in the wrong direction (and rendering the export business much less competitive).  The firm has written down a huge chunk of the value of it’s wine assets (including another $1.1b yesterday).

One valuation has put the value of the wine business at around $2.1b – which isn’t a great outcome given Foster’s also bought Berringer Wines for $2.5b back in 2000. The devaluation is no shock given the glut in grapes and weaking competitiveness of Aussie plonk.

So much for diversification reducing risk!

What will be fascinating is what happens to Foster’s Beer Arm when this split finally comes to fruition. The Aussie beer market is a very appealing, low risk, consistent margin market (at least for the two big players).  It is very possible we’re going to see Foster’s under the acquisition microscope, with almost every big brewer other than Kirin (who own Lion Nathan) possible suitors.

As I’ve said before, Moors Colson, SAB Miller and Anheuser-Busch Inbev could all squeeze Fosters’ into their global portfolios quite nicely.  Asahi may also want access to the profit taps of their Japanese rival (and presumably won’t cop too much grief from the regulators about their existing soft-drink assets down under).

The dark horse in all this might still be Coca Cola Amatil, although their announcement this week that their young Aussie beer business is in the red might reduce their enthusiasm.

Interesting times indeed.

Want a Woollies Ale?

May 18, 2009

The strategic manoeuvring in the Australian beer market continues. Our most successful supermarket chain, Woolworths, just bought 25 percent of listed Western Australian micro-brewer Gage Roads.

Woollies own the most successful big-box alcohol retail chain in the country – Dan Murphy’s – plus several other liquor chains, and a very large pub business. Shoring up some supply in the fastest growing segment of the beer market – boutique beers – certainly makes some sense.

Owning (or at least having a very strong say in the operations of) one growing brand may give Woolworths even more bargaining power versus any other brands that establish strong recognition in this market (i.e. “look, if you won’t drop your prices to us, we’ll just stock more Gage Roads”…).

The announcement to the market about the purchase indicated that Gage Roads would “contract brew” 350,000 cases a year for Woolworths. That equates to 6.3m litres. The brewery’s website claims they currently have the capacity for “3.5 million litres per annum, scalable to 7 million”. Clearly Woolworths are buying pretty much the whole lot.

This is virtual backward integration by Woolworths. Might we consider the Gage Roads brands simply as a private label now? Will Wesfarmers reply with a similar move for Coles?  And will Woollies do the same on the East Coast (shipping all that beer across the country might cost them a bit)?

Stretching an advantage further

May 5, 2009

cutting_costsLow cost is a common option in the business strategy literature. Often we assume that a firm that dominates market share, has substantial economies of scale, and offers a very price competitive product relative to its main rivals most be pursuing such a strategy to a greater extent than differentiation. The recent acquisition of Anheuser-Busch by InBev demonstrates that such assumptions should be tested.

As reported in the Wall Street Journal, the Brazilian-run, Belgian-headquartered InBev has certainly made some sweeping changes in taking over the US brewing rival.

The new owner has cut jobs, revamped the compensation system and dropped perks that had made Anheuser-Busch workers the envy of others in St. Louis. Managers accustomed to flying first class or on company planes now fly coach. Freebies like tickets to St. Louis Cardinals games are suddenly scarce.

InBev eschews fancy offices and company cars, and groups of its executives share a single secretary. It uses zero-based budgeting — meaning all expenses must be justified each year, not just increases. The company says it saved €250,000 ($325,000) by telling employees in the U.K. to use double-sided black-and-white printing, spending the money to hire more salespeople.

The story also reports extensions in payment terms to suppliers and cuts in advertising spend and format.

InBev clearly saw a lot of fat in this business despite (or perhaps because of) its 48.9% domestic market share. And it seems to be working thus far, with retail share up almost another 1% in the last quarter. Presumably margins are increasing even more.

I guess this could also be dropped in the benefits of multinationality box, with an MNE prepared to make the tougher decisions and to transfer capabilities into a new environment.


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