Scottish & Newcastle, the UK's biggest brewer, has reported an excellent start to the year for its leading brands. In a trading statement issued last week, the company said that volumes of the top five beer brands had grown by 3 per cent in the first five months of the 2002/03 fiscal year.
The good start to the year has left the company confident of meeting all its financial and commercial objectives for the year, even though conditions in a number of markets have been "variable".
"Strategically, the group has strengthened its positions in its core markets and made significant progress in developing its international beer business, most notably through the Hartwall transaction," the company said in the statement. Hartwall is the Finnish brewer and soft drinks producer bought by S&N earlier this year as part of its burgeoning international business.
This geographic expansion had helped the company improve its performance during the first five months of the year, the statement said, offsetting difficult conditions such as poor summer weather and low levels of consumer confidence.
New advertising campaigns for its leading UK brands Kronenbourg 1664, John Smith's and Foster's helped to increase beer sales in S&N's home market by 3 per cent during the year-to-date period, showing that the company is more than capable of holding its own - and indeed growing its business - in the increasingly competitive UK beer market.
S&N has reacted well to the changes in the UK market, notably the arrival of Interbrew and Coors following the sale of Whitbread and Bass, S&N's erstwhile rivals. The company has long been the UK market leader, and although its international expansion began relatively late, the acquisitions it has made (notably Kronenbourg in France and Hartwall in Finland) have been well thought out and have added to its profitability. The sale of the group's non-core operations, such as the Center Parks holiday complex business, has also helped S&N concentrate on what it does best.
Hartwall has been a particularly good acquisition, the company said, with the Baltic Beverages Holding business (a 50-50 joint venture between Hartwall and Carlsberg) showing substantial growth. Russian sales through BBH rose 36 per cent in the five-month period, while market share increased by to 33 per cent from 29 per cent a year earlier.
"We remain very confident that the underlying brand and operational strength of the Hartwall and BBH businesses will drive improved earnings into the future," S&N said. "The increased geographic scope of the business has given us balance between volume and value growth as well as greater resilience to short term fluctuations in local markets. We remain confident in meeting our expectations in this and future years."
Good start for smaller rival too
Greene King, S&N's smaller UK rival which has been carving a niche for itself as one of the leading supra-regional brewers in the country, also reported increased volumes. In the first quarter, volume sales of the flagship Greene King IPA brand were up 5.7 per cent, while the Old Speckled Hen brand was up 14.1 per cent and Abbot Ale by 22.2 per cent.
Unlike S&N, Greene King has not taken the international option and diversified into other countries and different types of beer. Instead it has concentrated on building a strong portfolio of British beer brands, acquiring other regional brewers such as itself and then adding their brands to its increasingly nationwide portfolio.
While there is still little market for British beer brands abroad, Greene King and a number of other regional players, in particular Wolverhampton and Dudley Breweries which claims to be the leading regional brewer in the UK with both Mansfield and Marstons added to its portfolio in recent years, have shown that there is still room for growth within the UK itself.
While real ale purists might argue that this growth has come at the expense of quality, something certainly needed to be done to help revive the flagging sales of real ale. With the major brewers such as S&N, Bass and Whitbread long ago abandoning the traditional values of the real ale brands in their portfolio - turning brands such as John Smiths or Boddingtons into chilled cream beers which are an anathema to the aficionados but much more likely to appeal to younger drinkers - the so-called supra-regionals opted to retain the core values of the brands they acquired but push their distribution into new parts of the country in a bid to increase sales.
For the moment, this seems to be working, and while there are still many excellent beers being produced in the UK, real ale drinkers seem to be a dying breed. The very requirements of pushing these brands into nationwide distribution - in particular the sharp increase in production volumes - means that it is hard to keep quality high or keep the taste the same, but the economies of scale that this kind of expansion has brought have at least made it possible for companies such as Greene King to survive - and grow -where others have fallen by the wayside.