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Opinion: NZ market turns beerish for Lion Nathan

By Kate Perry of NZPA

Friday 11th November 2005

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We may have a reputation as a nation of binge drinkers, but it seems New Zealand's beer swillers are developing a sophisticated palate, forsaking old favourites to sup on premium brands.

The trend affected Lion Nathan, which this week reported a 17.2% fall in earnings before interest, tax and amortisation (ebitda) for New Zealand over the September year to $75.7 million.

In news that would make the Southern Man shudder, Lion Nathan this week reported that old favourites Speight's and Lion Red suffered shrinking volume in the year to September, while premium brands such as Macs, Corona, Stella Artois and Becks had a 10% pickup in volume.

The gentrification of the beer market may have something to do with the aging population.

Per capita beer consumption has fallen in New Zealand as the population gets older, down from about 120 litres per year in 1987 to about 78 litres per year now, according to Lion.

Lion's New Zealand chief, Peter Kean, said people have changed the way they drink, and have moved away from drinking beer whenever they go out.

"What we are finding in our research is it's a lot more occasion based. So ...if you go to watch the footy down at the local, you'll probably have a few beers, but if you are heading out for a dinner in the evening you'll probably have a Sav Blanc or a Pinot," he said.

Other pressures changing the market include the introduction last December of legislation banning smoking in pubs and restaurants. Lion Nathan chief executive Rob Murray said as a result more people are staying home rather than heading out to the pub, and are buying their alcohol from supermarkets. Supermarket buyers tend to show less brand loyalty.

But not all beer drinkers are after a premium experience and while Lion's mainstream beers may be losing favour with the punters, there are signs that former red-blooded Lion drinkers out there may have simply jumped camp to rival brewer DB.

DB Breweries' Tui beer has been the subject of two wildly popular ad campaigns, the sardonic "yeah, right" billboards and the draggy/pervy TV ads featuring "Brucetta" and "Davida".

DB said it had been steadily picking up market share.

Lion still has more than half the New Zealand beer market, but DB managing director Brian Blake this week estimated Lion had shed about 3% of its market share, to about 51%, while DB has gained about 4% to a 38%.

Even the Lion-sponsored All Blacks have shown a penchant for one of DB's stable of beers, as shown in photos splashed across newspapers this week.

A number of All Blacks were snapped enjoying a few Heinekens ahead of the first rugby test in Wales, rather than quenching their thirst with Steinlager, which sponsors the team and is a Lion brand. In New Zealand, Heineken is brewed under licence by DB.

In response to the changing market, Lion is restructuring its New Zealand operations, a process it expects will keep profits flat for the next three years.

An Australian analyst, who asked not to be named, said Lion Nathan was set for "a few years of pain" in New Zealand.

Not only did it have to figure out a way of making a profit from supermarket sales it also needed to look at infrastructure improvements. "More and more consumers are moving into the grocery channel, where Lion Nathan doesn't really have as strong a presence...and margins are much lower," the analyst said.

He said making a profit through supermarket sales would be difficult as Lion competed against "value players" such as DB and Independent.

In terms of the strategic review, the analyst said it would take years for the effect of any changes to be felt. One area that needed work was revamping Lion's plants.

"Clearly they haven't invested enough in production facilities over the past few years and current management has to go through the pain of fixing that," he said.

One move Lion has already made to keep up with the Joneses, or in this case DB's Monteiths beer, was the opening of the first Macs concept bar last month in Wellington.

DB Breweries has 13 Monteiths concept bars around the country.

Lion's Kean said the company plans to roll out more Macs concept bars, as well as increasing the number of Speights Ale Houses and Belgian beer cafes.

Kean said the Lion will also concentrate its marketing on core, premium brands. "In terms of the value brands, when people choose to buy a brand that's lower priced or `value', they are not really interested in the marketing. That's a price choice and we probably won't be bothering to do a lot with those brands," he said.

In terms of brands like Canterbury Draught and Waikato Draught, Lion will continue regional marketing but may decide not to continue with nationwide campaigns.

The draughts have not morphed into nationally imbibed brews, such as Speight's, which has evolved from a small Otago brand, or DB's Monteiths, which originated on the West Coast. Lion's woes in the New Zealand beer market do not reflect the market in Australia.

Australian beer earnings increased 6.3% to $A377.3m ($NZ406m) in the September year, helping the group post a 40.4% jump in annual net profit this week of $A224.8m.

Lion's brands in Australia include Hahn, Tooheys and XXXX, as well as international brands including Tiger, Beck's, and somewhat bizarrely, Heineken. Lion's New Zealand wine operations were a bright spot, with its Wither Hills vineyard in Marlborough enjoying strong demand, especially offshore in the Australian and British markets.

But, in a reverse of the beer situation, Lion's wine volumes fell in Australia amid a market that was oversupplied with grapes. The company, 46 percent owned by Japan's Kirin Brewery Co, said it also planned to grow its dark spirit (rum and whiskey) brands, particularly in Australia.

Shares in the company have fallen from a high of $9.42 in January to $7.90 today, having hit a 12 month low of $7.20 in May.

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