NEWS ANALYSIS – Licence to chill

Since acquiring the European rights for Australia’s most recognisable brand, Scottish & Newcastle has taken Foster’s to new Super Chilled heights, says Selwyn Parker

Even in these days of billion-pound acquisitions, £309 million is still a lot of money to pay for a single brand of beer. That is why the industry was intrigued when Scottish & Newcastle, the world’s seventh-largest brewer, took a deep breath and handed the cheque, or rather, the electronic transfer, over to Carlton & United Breweries, the long-time owners of Foster’s, in March.

After 10 years of running the brand in the UK and Europe on behalf of the Melbourne-based company, in a not entirely happy relationship, it now has sole charge in this neck of the global woods. Indeed S&N now has responsibility for 90% of Foster’s sales.

Alex Oldroyd, managing director equity research for Morgan Stanley, argues that the purchase was a shrewd move for S&N in spite of the high price. “It was quite expensive as the previous arrangement had been quite favourable to S&N,” she says. “However, it gives them more flexibility with regard to new product development and future M&A.”

But what everybody wants to know is, does S&N know something about the true blue, fair dinkum brand that its parent company doesn’t? After all, this is quite a brand, the most recognisable Aussie brand name in the world. It’s number one in London and number two in Britain – every day in the UK, no less than 2.5m pints of the stuff is consumed. And it’s still winning awards, nearly 120 years after it first hit the streets of Melbourne. However CUB, which sees its future mainly in wine, had clearly decided its iconic lager was a mature brand with little upside.

Well, six months later, the answer has emerged and it’s very much in the affirmative. S&N chief executive, Tony Froggatt, who happens to be Australian, has shown that Foster’s has a long way to go yet. Hitting the on- and off-trade running, S&N started spending as soon as it bought control. It tripled the marketing budget, up to  £50m so far this year, and threw everything at its new acquisition. The result was a rapid growth in market share in Britain in the first three months by 3.1% to 32.3% overall. Interestingly, the biggest gains (4.7%) came in the off-trade.

The Edinburgh brewer also accelerated the roll-out of its Super Chilled Foster’s at three degrees Celsius, first launched in 2004. There are now 35,000 of these eye-catching, frosted installations in pubs and clubs across the UK at a total investment of £9m, and growing by the day. “The condensation font is one of the most effective point-of-sale devices we have,” says consumer marketing director, Paul Bartlett. All up, the Super Chilled roll-out accounts for about 200,000 incremental pints a day.

And leveraging the brand, in September S&N launched Foster’s Twist, a 4.5% ABV, citrus-hopped bottled beer that is Foster’s first extension in Britain in 10 years. It’s a direct competitor to market-leaders Budweiser and Corona. According to Froggatt, Foster’s Twist has taken off faster than any other recent S&N launch.

And never mind the football, S&N won the lager World Cup, at least in Britain. In the eight weeks to July 7, Foster’s beat both Carling and Carlsberg in sales measured by volume and share. Taken together, it all means Foster’s has jumped to its highest-ever market share in Britain in the sub-5% ABV standard lager category, and is rising.

The Foster’s factor played a significant role in S&N’s 9% jump to £187m in its latest interim profit. So yes, you can say the Edinburgh brewer did know something about Foster’s that its parent didn’t.

Seemingly there’s more to come. “We’re far from plateau-ing at those figures,” promises Bartlett. “The trajectory is upward. We have no plans to level off.” He points out, for example, that Foster’s is still in only half of the 80,000 clubs and pubs in Britain. “There’s a lot of room for expansion yet,” he adds. As Foster’s overall manager, Phil McTeer, adds, the whole strategy is to “outperform the standard lager market”. 

The story behind Foster’s newfound momentum lies essentially in the freedom that Bartlett and the rest of the marketing team now enjoy. For the last 10 years, S&N had to look a long way over its shoulder. It routinely took at least 16 weeks to get the green light for an initiative from the brand’s down under guardians, and sometimes as long as six months. In the drinks industry, that’s a lifetime in the age of scientific marketing.

Although the relation-ship was generally cordial, it was sometimes irksome. Privately, S&N people say there were a few battles with CUB over the stewardship of Foster’s in this part of the world.

Says one source with evident relief, “Now we control our own destiny.”

It wasn’t that Foster’s had done badly under the stewardship of S&N, which had picked up the brand through its acqusition of Courage in the mid-nineties. Sales by volume had grown by an average 6% in Britain over the last three years, by far Foster’s biggest single market, and 15% in mainland Europe including the eastern European countries, the new battleground for brewers. Under an incentive-based arrangement with CUB, S&N paid royalties based on sales. Last year, for instance, CUB collected £15m.

Before he bought Foster’s, Froggatt cleared the decks. He sold Beck’s back to InBev last year, a full six years ahead of schedule,. And in January S&N shed some of the responsibility for Miller Genuine Draft to Miller Brands UK.

M&C Saatchi’s ad campaign can claim some of the credit. A runaway hit according to the latest awareness figures, the latest version shows monosyllabic Aussies in board shorts so intent on keeping their Super Chilled Foster’s under a cloud that they walk straight past bikini-clad girls.

The branding trick is to imbue Foster’s with a northern hemisphere version of its heritage – an easy-going cocktail of sun, sand and sea. In short, the laid-back pint with a few mates. “Australia is regarded as safe exotica,” Bartlett explains. “Our target audience see Australia as like the UK, but nicer.”

This is why S&N encourages drinkers to play at being Aussies. Its outlets fired up around 50,000 barbeques this summer to cook a few million “bonzer bangers”. And Foster’s surfing festival at Newquay attracted around 150,000 people. In truth though, Foster’s in Britain and Europe is not quite the same beer they sell down at the Returned Servicemen’s Association in Collingwood, Melbourne. Here it’s 4% ABV, the easy-drinking pint, compared with 5% in its heartland. “At 5% it gets a bit problematical,” explains Bartlett. “We’re not about heavy hits of alcohol.”

However it’s very much about the cold serve that is obligatory in Australia and becoming increasingly so here – and not just in lagers. S&N’s proprietary Super Chilled technology is designed to capitalize on the irreversible trend towards colder drinking. “Cold is the number-one factor in determining drinker satisfaction and taste preference among beer and cider drinkers,” confirms David Goadby, customer marketing director at Scottish Courage. He attributes a 2.5% jump in sales over the last 12 months to the Super Chilled factor. In short, we’re drinking colder.

S&N is backing that conclusion with what we may well look back on as a sea change in British draught beer. From September, S&N started making available its full portfolio of flagship drinks, John Smith, Kronenbourg 1664, San Miguel, and Strongbow, on Super Chilled fonts.

So where does Foster’s go from here? Clearly there’s room for growth in Britain but S&N is looking across the Channel. “We believe there’s a massive opportunity there,” says Bartlett. “We have very aggressive plans, particularly into eastern Europe.” You can only hope that CUB gets what it wants from wine.

© db November 2006