BUSINESS NEWS

Young’s reaps profits from sale of ram brewery…Warehouse chain records majestic profits…Kirin looks beyond beer for growth…Whyte & Mackay still talking to UB Group…Brewers fall on hard times…Trading on tradition

Young’s reaps profits from sale of ram brewery

Young & co’s brewery saw its pre-tax profit rise by a mammoth 885.5% to £42.7 million in the six months ended September 30, thanks to the sale of the Ram Brewery. 

Stripping out the sale, operating profit for the semester was down from £6.05m last year to £5.8m, but the company’s turnover was up 10.6% to £69.1m.

CEO Stephen Goodyear said that trading in Young’s pubs had been strong in the first half of this year. This trend continued in the second half with managed house total sales for the first six weeks up 21.9%. He added, “We have the management, operational infrastructure and financial resources in place to continue this growth.”

The brewery and its associated sites were sold for £69m after members of the board concluded that it would be “uneconomic” to invest in improving the Ram Brewery because of its age, layout and location.

At the time of the sale, Goodyear said, “The sale of the Wandsworth sites will unlock substantial capital to continue to build Young’s high-quality pub estate and enhance shareholder value. This deal will enable us to make a step change in the financial performance of the company.”

Young’s has a 40% stake in Wells & Young’s. The remaining equity is held by Charles Wells. 

Warehouse chain records majestic profits

While the rest of the UK wine industry wonders how to get consumers to trade up, Majestic Wine appears to have found the secret. The wine warehouse chain has recorded a double-digit increase in pre-tax profits to £6.5 million. The company attributes the 17% leap to the fact that customers are spending more on wine. In the six months to the end of September, the average botttle sold for £5.66 compared to £5.54 last year. Sales of fine wine (priced at £20 and above) also jumped 33%.

Majestic’s customers have taken to shopping online and orders placed on the company website went up 43% as a consequence.

Champagne and rosé sales were strong while wines from the Loire, Spain, New Zealand, Chile and Argentina also proved popular.

The company revealed plans for a £20m share buy-back in the next few months for just under 10% of the company’s shares.

Kirin looks beyond beer for growth 

Kirin Brewery has made a bid for a majority stake in  Mercian Corporation, the Japanese wine and spirits producer and marketer. Mercian has agreed to accept the offer, which will see Kirin take a 50.12% stake in exchange for JPY24.79 billion (US$210m).

The Japanese brewer was able to fund the acquisition thanks to recording a 20% leap in profits in the first half of this year.

Through this acquisition, Kirin hopes to improve its position in its domestic market and increase opportunities for growth in the long-term by moving away from the static Japanese beer market. Domestic beer shipments fell to their lowest levels since 1992 in the third quarter of this year. Kirin’s president Kazuyasu Kato said, “We aim to become the strongest comprehensive liquor group in Japan.”

Mercian Corporation’s products include its top domestic wine brand, Mercian, Karuizawa whisky, Hon-Shibori CHU-HI – a shochu-based drink that contains pure fruit juice – and Hakusui premium shochu. 

Whyte & Mackay still talking to UB Group

Whyte & MAckay is still in talks with Indian conglomerate UB Group despite UB CEO Vijay Mallya’s refusal to meet Vivian Imerman’s £600 million asking price for the Scottish distiller.

Imerman has claimed to be in “continued negotiations with a number of parties”. William Grant & Sons is seen as a possible contender and is understood to be interested in the own-label part of the business.

Mallya has made it clear that he thinks Imerman has overvalued Whyte & Mackay and has said publicly that the company is worth only £473m.

However, UB Group is anxious to add a Scotch whisky to its portfolio in order to meet rising domestic demand for Scotch. As well as the eponymous whisky, Whyte & Mackay produces Isle of Jura Single Malt and Dalmore Scotch.

Mallya has also made no secret of his desire to acquire a UK distiller in order to be able to sell and distribute his whiskies in Europe. Market rumours have suggested that Mallya may consider a distribution and licensing deal with Whyte & Mackay if the deal falls through.

Imerman took full control of Whyte & Mackay last year. Since then, he has invested £100m in the firm, focusing on the company’s own-label business.

The UB Group failed in its attempt to purchase Taittinger Champagne earlier this year.

Brewers fall on hard times

Far Eastern brewers consider beer alternatives to boost poor sales 

This month, beer brewers are trying to find new ways to increase static beer sales. Of late, Japanese brewers have started to look beyond beer to grow their revenue with both Sapporo Holdings and Kirin Brewery making moves outside the category. Falling share prices for Sapporo, Kirin and Asahi Breweries reflect the current stagnation of the Japanese beer market.

Meanwhile, closer to home, the European market is also proving difficult for mainstream beer brewers as discounting activity takes its toll and cider proves increasingly popular. Even the mighty Scottish & Newcastle has seen its share price remain more or less static following its recent warning that the weak consumer environment in western Europe will continue into next year, wih UK sales hit by the introduction of a smoking ban in pubs in England and Wales.

However, all is not doom and gloom in the beer industry. Foster’s Group has seen its share price rise by 20.98% while Carlsberg and Ambev’s share prices have risen 16.99% and 11.87% respectively. Carlsberg has increased its full-year operating profit forecast following strong Q3 performance. Meanwhile, Ambev has launched a share buy-back after reporting a 21.8% profit rise last quarter.

This month’s graph shows the rise of the  MSCI Emerging Markets Beverages Index over the MSCI ACWI Beverages and MSCI World Beverages Indices.

McConnell comments on rum’s rising share of the off-trade market, saying that “retailers are beginning to list golden rums and although this is from a small base, demand is certainly there.”

Castle Brands has a very definite strategy for where Goslings is sold. “We’ve been trail-blazing in style bars. We don’t sell in any pubs,” says Stewart. “We were quite upfront that we would hold off a minimum of 24 months before going near the off-trade,” he explains.

Bade agrees with a delayed off-trade launch, speaking with the experience he gained building 42 Below. “You’ve got to create a brand first – there’s no point having it sitting on the shelf. In a perfect world, you want to back up what you’ve done in the on-trade when you release it in the off-trade.”

For Smith, however, it is slightly more complex than this. “You build brands in the on-premise, but having said that, people have to see that it is approved by retailers.”

Trading on tradition

In terms of heritage and provenance, the rum category provides plenty to work with, with offerings from Cuba, Barbados, Jamaica, Trinidad and many more. As Stewart explains, “Dark rum has a heritage, a story. You can’t just turn it on and off like a tap.” Goslings has a particularly strong heritage of 200 years and seven generations. “The fact that they still haven’t sold out in this day and age is a rarity,” he says.

Stephenson’s interpretation of rum’s provenance is not a conventional one. “We’ve always felt that rum was quite tribal, with lots of companies protecting where the rum came from. While we believe that provenance is important, we believe that environment is just one of the elements.”

“Provenance of any spirit is usually important, and as much so for rum,” says Angostura’s Marshall. “Trinidad has a unique style and identity.” For Bowstead, history and heritage “can also be a key indicator of the taste and quality of a product”.

The fact remains that rum is one of the few growing segments of the spirits category, with potential for further growth. The predictions for rum are not impossible to achieve, provided that interest is not limited to those within the industry. “I think that the future for rum is very bright,” says Marshall. “But we’ve got to be diligent and take the consumer with us.”

© db December 2006