E-Malt.com News article: Australia: Coca-Cola enters the Australian beer market with boastful plans for getting over 50 mln litres of beer annually by 2010

As Coca-Cola Amatil (CCA) is expected to turn the first sod on Australia’s newest brewery on the NSW Central Coast in just two months, its entry in the local beer market underscores the enormous change sweeping through the sector, the Australian Business communicated on September, 12.

The nation’s once almighty brand Victoria Bitter, or VB, remains the clear number one beer but its market share has slipped from just under 30 per cent in 1999 to 19 per cent in 2007 and just over 17 per cent in July 2008, according to Nielsen figures.

While it remains unclear whether its demise will be as swift and complete as that of Foster's, Australia is unlikely to ever see such a dominant brand as VB again, experts believe.

The phenomenon of premiumization is taking hold, and low-carbohydrate beer headed by Pure Blonde and mid-strength brews led by XXXX Gold are continuing to eat away at the market share of the older-school mass-market monsters.

The local beer market some time ago turned into a cosy duopoly between Foster’s and Lion Nathan, but now CCA is trying to enter the competition.

According to experts, however, Coca-Cola's fitful boast that it wanted to be the number three beer maker and have 3 per cent of the market by 2010 may fall short.

In 2006, CCA formed Pacific Beverages with global brewer SABMiller, selling premium brands Peroni Nastro Azzurro, Pilsner Urquell, Miller Genuine Draft, Miller Chill and Grolsch.

In 2007, CCA acquired boutique NSW brewer Bluetongue for $30 million or so and this year announced it will build a $100 million, 50 million litre brewery. Right now, a lot of money and management effort is being funnelled into what now and possibly in the future will remain a marginal business.

After Foster’s and Lion Nathan, there is Adelaide's family-owned Coopers.

A mass-market beer in its native South Australia, where it can be found on tap in every inn in the state, elsewhere it is a boutique brand. Lion Nathan made a failed $420 million attempt at buying it out in 2005 but the family held firm.

In a market of about 1.65 billion litres per year, Coopers currently sells about 50 million litres per year and Boags was selling about 45 million litres when Lion Nathan acquired it last year for $325 million.

Despite some growth, CCA currently has only around 8.7 million litres of beer.

To get over 50 million or more by 2010 to reach 3 per cent looks like a stretch, analysts insist.

Reaching 5 per cent would mean about 85 million litres. So unless CCA acquires something, they need to grow their portfolio to be almost as big as Corona, Heineken, Becks and Stella Artois (which is about 3.65 per cent of the market combined) with less popular brands.

Beer is a great solid business. Lots of cash flow and earnings before interest and tax margins of about 30 per cent across the market. This can step up to as high as 40 per cent with premium brands brewed under licence.

At the moment costs are still having an impact due to things like the drought and commodities boom making cans cost more.

As VB declined, the big growth brands have been LN's XXXX Gold, now the second biggest brand in the country, with more than 12 per cent of volumes of total market volume. Foster's Pure Blonde -- up around 60 per cent for the year at 3.4 per cent -- and Carlton Draught continues to grow and is now around 8 per cent of the market.

LN's Tooheys Extra Dry is up 26 per cent for the year's volume share to July with 4.3 per cent. The biggest selling foreign beer is Mexico's Corona, fully imported by Foster's, and the next biggest is Heineken, now brewed here by LN.

So far, CCA's success has been minimal, particularly in a financial sense. Its alcohol business lost $300,000 in FY2006, made an $800,000 profit in FY2007 and was back in the red for the first half of 2008 to the tune of $300,000 -- but it says the full year will be back in the black.

This week there were unnamed companies in the market, buying up parcels of Foster's.

It is hardly in great shape as it searches for a new chief and reviews its entire failed wine strategy, although beer sails on steadily enough, despite the VB decline.

However, experts predict a bigger game in the future, for SABMiller and Coca-Cola did not come into the Australian market for small shares and skinny profits.


16 September, 2008