Milk wars hit Lion’s profits
When the supermarket chain Coles began selling two-litre bottles of house brand milk for AUD 2 (USD 2.12) in January last year, a discount of up to 33 percent that was instantly matched by larger rival Woolworths and German-owned discounter Aldi, Australia’s brewer-cum-dairy-company Lion knew they were in for a rough year.
This was confirmed in February 2012 when Lion, a fully-owned subsidiary of Japan’s Kirin, reported they had to write-down AUD 1.2 billion (USD 1.3 billion) across its business for the financial year to 30 September 2011.
While the milk price wars between Coles and Woolworths was the single biggest blow, the business faced other significant headwinds.
‘‘The 2011 financial year was one of the most challenging on record, as low consumer confidence, aggressive discounting, poor weather and natural disasters combined to create a perfect storm,’’ Lion CEO Rob Murray was reported as saying on 11 February 2012.
Kirin has now written down the value of its Australian business – which includes National Foods, Dairy Farmers, and more recently the brewer Lion Nathan – by AUD 2 billion since 2010. In 2007 Kirin had acquired National Foods for AUD 2.8 billion and in 2008 it bought Dairy Farmers for AUD 910 million.
Lion said its dairy and drinks business – which accounted for the majority of the AUD 1.2 billion worth of write-downs last year – ‘‘is still a long way from achieving acceptable return on invested capital, with conditions in both the dairy and juice sectors remaining very difficult for farmers and processors alike.’’
Lion’s EBIT was halved to AUD 90.3 million (USD 95.7 million), while revenue dropped 10 percent to AUD 2.82 billion (USD 3.0 billion).
Lion’s beer, spirits and wine division reported full-year volume declines of about 6 percent but a changed product mix meant revenue dropped a more moderate 4.2 percent to AUD 1.58 billion (USD 1.68 billion).
In the final quarter of 2011 Australian beer consumption is believed to have dropped 6 percent.
The acquisition of Foster’s in September 2011 gives SABMiller a 50 percent share of the Australian beer market. Its closest rival Lion Nathan is the number two brewer in Australia, holding roughly a 40 percent share of the market (down from 44 percent in 2007) with brands such as Tooheys, Hahn, and Castlemaine XXXX.
