The comfortable world that’s the Australian beer market with Fosters and Lion Nathan controlling around 95 per cent and sharing things out between them, controlling all the bulk beer and picking off share in the faster moving, higher margined premium end to the market, is about to change if Coca Cola Amatil has its way.
In its long awaited review of its future strategy (for at least the next three years to five years), CCA yesterday outlined ambitious plans to become the number three brewer in the country.
Fosters is first, Lion Nathan second with Coopers third. Then there’s a host of emerging premium-micro brewers, such as Matilda Bay, Blue Tongue, Gage Roads, Little Creatures (through the listed Little World Beverages), Empire Brewing and Oz Brewing. Some are listed, some are not, and some are brand names.
Coca Cola Amatil wants to become Australia’s third major brewer; not as large or dependent on huge volumes like Fosters Group and Lion Nathan, more an efficient maker and seller of high margin premium beers through its joint venture with SABMiller.
CEO Terry Davis said in a statement revealing the results of the review that “The Australian beer market is one of the most profitable in the world. We are aiming to become the clear No. 3 player in the Australian beer market by the end of 2012.”
That would mean overtaking Coopers by either some rapid acquisitions or by spending a lot of money on a greenfields brewery business. Coopers is strongly independent, having fought off Lion Nathan over the past two years and would not be thought to be on the market.
A study into starting a local brewery will be completed before the end of 2007, and the plant may include the production of new Australian beer brands and imported labels. Davis also aims to sell alcohol in New Zealand this year.
Coca-Cola Amatil said it expected its share of the capital expenditure for an Australian brewery would be between $100 million and $125 million.
Coca-Cola Amatil already distributes alcohol, including SABMiller’s Peroni Nastro Azzurro, Miller Genuine Draft and Pilsner Urquell brands. Late last year the company agreed to take over Australian distribution for spirits including Jim Beam bourbon, Absolut vodka and Famous Grouse Scotch.
Mr Davis said yesterday local manufacture of selected premium beer brands as well as the development of new domestic brands could provide an attractive and logical sequence for the development of CCA’s Australian beer business
The company now gets 32 percent of sales from outside the soda market, compared with about 5 per cent in 2001, after CCA bought companies such as fruit canner SPC Ardmona and water bottler Neverfail Springwater and the Grinders coffee business at a total cost of more than $700 million.
“In doing so CCA has also increased its relevancy to a broader base of customers and consumers, expanded its EBIT margins from 11.4% to 13.3%, generated EPS growth of 11.3% per annum and grew dividends per share by 15.7% per annum,” Mr Davis said.
Davis said in his statement that “Coca-Cola Amatil will take a fundamental change in the direction for the Australian and New Zealand businesses, shifting from aiming to provide our customers and consumers with a non-alcoholic beverage for every occasion to a beverage for every occasion”.
The company is currently considering bids for its South Korean bottling unit and expects to make a decision next month and that remains the key decision about the company’s outlook. Once it gets rid of the sluggish and poor-returning South Korean business, the company will have amore stable earnings base to work from.
While it will keep Indonesia, Fiji and Papua New Guinea, CCA said it will be focusing strongly on Australia and New Zealand.
The company said as part of its strategy it would grow its share of non-alcoholic drinks by expanding its products and broaden the beverage portfolio into the highly profitable alcoholic beverages market in Australia and New Zealand.
“CCA will seek to expand its offerings into categories where it has low or no presence – including flavoured milk, energy, juice and RTD tea – while continuing to innovate to drive higher share in high growth categories of sports drinks, water, enhanced waters and low calorie CSDs,” Mr Davis said.
As a result of the review, the majority of new capital allocation would be directed towards Australia and New Zealand where CCA’s business was strongest.
“Alcoholic beverages, in particular, beer, spirits and alcoholic RTDs provides a natural extension to CCA’s product offering in Australia and New Zealand as it enables us to leverage the scale and efficiency of our sales, distribution and manufacturing infrastructure with SABMillers marketing and technical brewing expertise in a highly profitable market segment.”
(Which makes it a little hard to understand why it didn’t partner with either SABMiller, or a private equity group and make a determined bid for the big NZ RTD group, Independent Liquor, when it was on the market last year. Pacific Equity Partners led a group which bought IDL.)
CCA said a major IT infrastructure development to re-engineer business processes would be launched and that would involve all the businesses being made national and channel based, instead of state based. NZ would be integrated into Australia.
Around $65 million would be spent on software, infrastructure and re-engineering its businesses processes to develop a world class operating system.
Interestingly Lion Nathan has been heading in the direction of loading more third party products into its distribution system to lift efficiencies, revenue and margins. That’s something CCA is trying to do, but sourcing more from within its own range of products.
But Fosters is vulnerable as it tries to knit its beer and wine distribution and sales teams together in Australia. That failed
