Declining Market is a Bitter Blow for Brewers

Among the industries battered by a “perfect storm” of economic woes, the UK brewing sector looks the most deserving of the tag as it wrestles an unprecedented series of performance-sapping conditions.

A shrinking market and dismal summer, a pub smoking ban that has lured drinkers to cut-price offers in supermarkets, and spiralling ingredient costs have combined to take the fizz out of brewers results like never before.

Figures out recently from some of the country’s biggest players have underlined the problems.

Britain’s largest brewer, Scottish & Newcastle, whose brands include Foster’s, John Smith’s, Kronenbourg 1664 and San Miguel, said the UK beer market declined 3.9 per cent last year. The pub and bar trade was down 6.5 per cent, with off-trade down 0.1 per cent.

The group’s UK sales were flat at Pounds 1.8bn, while operating profits tumbled nearly 8 per cent, to Pounds 213m.

European heavyweights have also warned of UK market troubles. Stella Artois, Becks and Tennent’s owner InBev said that its UK volumes dropped 8.3 per cent during the nine months to September 30 last year, following on from a drop the year before.

Dutch giant Grolsch also posted a 10 per cent sales fall in 2007, saying the premium beer market was under “severe pressure”. And Danish brewer Carlsberg said the UK market shrank last year, only managing to grow its share through canny advertising and more supermarket sales.

It is little wonder that the industry has consolidated as big players look to target new markets and boost efficiency levels. S&N agreed a Pounds 7.8bn takeover by Carlsberg and Heineken last month, which is planned to provide up to Pounds 120m of savings, while US giants SABMiller and Molson Coors combined their huge US operations last year in move that will save an estimated $500m a year (Pounds 255m).

Trevor Stirling, beverage analyst at Sanford Bernstein, said that 2007 was one of the UK beer industry’s worst years.

A general trend of lower alcohol consumption due to weaker consumer spending and shifting social patterns accelerated markedly during last year’s washout summer and the England and Wales smoking ban, he said.

Supermarkets have also been waiting in the wings to pounce on cash-strapped drinkers with discounted beer, he added, eating into brewers under-pressure profit margins.

Mr Stirling said: “Over the last two years, alcohol consumption across the country has been dropping in the UK. In the alcohol market, the share for beer has been falling, while spirits and wine has been gaining.

He added: “The UK is undoubtedly the toughest beer market in the world.”

Walkabout and Jongleurs owner Regent Inns issued a profit warning in December and said like-for-likes sales continued their descent in January.

And Britain’s biggest pub company, Punch Taverns, reported a “subdued” Christmas and New Year, like-for-like sales across its managed pubs, down more than 2 per cent since August.

But the group said it retained underlying confidence in the sector.

Brewers have been turning to new markets, such as cider, which is growing at nearly 19 per cent per year, and speciality beers as tastes

have changed.

Edinburgh-based Scottish & Newcastle’s cider portfolio – which includes Strongbow and Bulmers – saw volume growth of 15.1 per cent last year.

Mr Stirling said: “If the retailers were to raise their alcohol prices, that would certainly help alleviate things for the brewers.

And to counter the UK challenges, the brewing giants have turned to markets in developing economies, such as Eastern Europe and India.

(c) 2008 Yorkshire Post. Provided by ProQuest Information and Learning. All rights Reserved.