Now we feel like a Bluetongue or two
By Eli Greenblat | smh.com.au | 24 August
When the Coca-Cola Amatil boss, Terry Davis, issued the beverage company's first-half profit results several days ago, some of the most glowing praise was directed at his premium beer joint venture with the global brewing giant SAB Miller.
The joint venture posted volume growth of more than 50 per cent for the first six months of this year, against more modest volume growth of only 2.7 per cent for Coca-Cola Amatil's traditional Australian soft-drink and beverage business.
It was a stark report card showing where the growth is to be found in the beverages market and the mature profile of some beer sectors.
Pacific Beverages is still a midget when compared to the breadth and earnings muscle of the Coca-Cola portfolio, but its growing range of beers such as Peroni, Miller Chill and Bluetongue have registered an immediate hit with consumers, who are becoming less loyal to one particular brand and more partial to a range of brands.
For heavyweights Foster's Group and Lion Nathan it means they must bring innovation to their beer portfolio or risk being run over by more nimble players new to the beer market who, with a catchy label such as "Fat Yak" or "Little Creatures", can grab market share and the fidelity of a thirsty public.
"The Australian beer market is a duopoly," says Mr Davis, "so to the extent that major customers would like to see a third force in the Australian beer market and given our partner is SAB Miller, the second- or third-largest brewer in the world, that gives us access to significant amount of high-quality brands."
Pacific Beverages has already taken 8 per cent of the premium beer market since its formation in 2006. It is the No.4 player in the Australian beer market and is keen to supersede Coopers as the No.3 producer.
As with its smaller peers, Coca-Cola is trying to chip away at the grip Foster's and Lion Nathan have on drinkers, with the two powerhouses still accounting for about 93 per cent of industry volume.
There was a time when a person's loyalty to their beer was as resolute and unwavering as their support of a football club or political party. Much like the team guernsey or party affiliation it was passed down from one generation to the next, and guaranteed repeat customers for Foster's and Lion Nathan.
For Foster's especially, it was easy money.
Its Victoria Bitter at one stage posted sales as much as three times those of its nearest competitor. In its home state, the stranglehold on drinkers' hearts, minds and taste buds saw its market share creep well above 50 per cent.
But Australians are demanding more choice across beer types and will jump from domestic beers to international brands as well as experiment with craft beers or micro brewers.
A VB or Tooheys might be fine on the couch, but when turning up to a trendy dinner party, a six-pack of Beck's will probably be more welcome than a slab of Melbourne Bitter.
"Consumer repertoire is definitely increasing," says Arno Lenior, Lion Nathan's director of premium brands. "We are seeing people have more and more brands in their repertoire ... they are definitely spending up."
Of course, premium beers are not only more expensive, they also generate higher margins for brewers.
The search for the next big premium beer by Foster's, Lion Nathan and others is also a search for a line of beverage that will replace tapering demand for their own entry point beer such as VB or Tooheys.
While beer remains the most popular alcoholic beverage in Australia, sales per head have gradually fallen since a 1979 peak as higher incomes and a more health-conscious public saw a shift to wine and other drinks.
The wholesale beer industry in Australia turned over $5.8 billion in the 12 months to June 30 last year, throwing off compound annual growth of only 5 per cent since 2003.
The explosion of premium beers promises to top up earnings for the major beer companies as sales of traditional labels flatlines, with some premium labels growing at more than 40 per cent.
Premium beer sales as a sector have been growing at more than 10 per cent for the past five years and now account for 12 per cent of the Australian beer market. The quickest way to secure new labels has been to strike licence agreements or acquire businesses outright.
Lion Nathan distributes international premium and spec_ialty beers via agency agreements with global brewers such as Diagio Plc (Guinness and Kil_kenny), Anheuser-Busch Inbev (Beck's), Heineken and Grupo Modelo (Corona in New Zealand).
Lion, in the midst of a takeover from the Japanese giant Kirin, forged a joint venture with Heineken in 2004 and bought the leading premium brewer J Boag & Son last year.
It also has a stake in Little World Beverages, a publicly listed micro brewer.
Foster's has its own deals with the same overseas players and manufactures or imports a range of must-have brands such as Corona and Anheuser's Stella Artois, while it brews and distributes Carlsberg.
Norman Morris, of Roy Morgan Research, says there has always been a trend towards people trying new things, and this holds true for beer, especially in the current economic downturn.
He said people were still going out, if with less frequency, but when they did go out they tended to spend their money in specific areas such as premium beers.
"What growth there is in the market seems to be concentrated among imported brands, such as Corona or Stella Artois for Foster's, or Heineken for Lion Nathan, mostly at the expense of more traditional premium brands."
But the traditional labels haven't been consigned to the dustbin yet. Both Foster's and Lion Nathan have leveraged off existing loyalty to their well-known brands to create new beers such as Hahn for Lion Nathan Hahn and Crown for Foster's.
Beer marketing executives talk about an "expanding palate" when describing customer behaviour. They are driving a further segmentation of the market, with premium domestic beers emerging to challenge the likes of Beck's or Grolsch, while entirely new types are created, such as low-carbohydrate beers.
"There has been an overarching trend to 'premiumisation' over the last several years and that trend has certainly hit the beer world," says the group marketing manager for premium beers at Foster's, Ben Summons.
"Your classic VB will still be consumed at a footy club or night out with the boys, but perhaps at a different occasion, an upscale venue, people will be drinking a premium beer."
Lion Nathan is also focusing on another premium segment. "One of the emerging sectors, which we call the step-up premium segment, are brands like Hahn Super Dry and Tooheys Super Dry, which are above mainstream beers but not in the international or domestic premium space," says Mr Lenior.
For Coca-Cola Amatil's boss, with his infrastructure already in place as he makes and distributes Coke products and other beverages, beer represents a growing market ripe for his company to take advantage of.
Its Bluetongue beer delivered growth of 60 per cent for the first half of this year and the construction of a new $120 million Bluetongue brewery on the NSW Central Coast will be completed next year.
All he needs is for consumers to try his beer at least once; that's when the old loyalties start to break down.
First published by Smh.com.au on August 24 2009
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