A hard landing for SABMiller
Australian media report that Foster’s has had a rough start under new owner SABMiller, losing contracts that accounted for almost 10 percent of sales by volume, while seeing its flagship VB beer brand continuing to decline.
In annual accounts submitted to the London Stock Exchange in May 2012, SABMiller revealed that the loss of contracts to brew or distribute imported brands such as Corona, Asahi, Stella Artois, Carlsberg and Kronenbourg had wiped 915,000 hl from its annual volume sales, which in 2010/2011 were 9.71 million hl.
The owners of the brands – SABMiller’s international rivals – were able to terminate their contracts with Foster’s under change-of-control provisions triggered by the USD 12.3 billion takeover, completed in December 2011.
As if the loss of these high-profit brands was not bad enough for Foster’s earnings, the defection of these brands will culminate in Foster’s relinquishing its position as Australia’s largest brewer to Kirin-owned competitor Lion sometime this year. Lion is the maker of the Toohey’s, Hahn and XXXX brands and the new local distributor of market-leading import Corona.
In its statement SABMiller wrote that losing the contracts "was a known risk at the time of the acquisition", meaning they had been factored into the acquisition price. Well, some beg to differ.
However, the really bad news for SABMiller’s Australian business is that Fosters’ domestic beer brands have seen volume declines of 4 percent too, a result SABMiller blamed on "continued subdued consumer sentiment".
"The traditional regular mainstream segment, which includes Victoria Bitter, declined at a higher rate than the market," but Carlton Draught consolidated share, the company said.
Sales of premium beers including Crown Lager were stronger, while craft brands such as Matilda Bay Fat Yak Ale grew rapidly.
Revenue per litre beer increased by 3 percent for the first three months of the year on a pro forma basis, as SABMiller cut back on the heavy discounts to retailers. Still, Foster’s EBITDA was down because of lower sales volumes and what SABMiller described as "increased commercial investment in the market", which could suggest retailers were offered rebates to shore up its market position.
SABMiller has cut costs – USD 6 million so far – from Foster’s, which it expects to translate into annualised savings of USD 40 million, with cost savings hopefully contributing USD 180 million to pre-tax earnings by the end of the 2015/2016 financial year.
In an effort to shore up morale at Foster’s, Ari Mervis, its new top honcho from SABMiller, recently acknowledged that Foster’s had suffered from a defensive culture and a lack of consistent strategic direction, but he said that “some (sic!) fantastic employees were glad to once again be part of a true beer organisation, and be able to go forward.”
