UK brewers on beer market slim-fast plan

Scottish & Newcastle successfully outperformed a sluggish UK beer market in the first half of 2005, announcing a two per cent sales rise to £813m (almost €1.2bn) and operating profits up 11 per cent to £70m.

The positive news comes as many alcoholic drinks producers look to increase trade in the UK through longer opening hours.

The British Beer and Pub Association said that around 90 per cent of pubs had applied to stay open longer, generally until midnight or 1am, under the government's new 24-hour drinking legislation.

Yet, while pub firms like S&N's Pub Enterprises hope this can increase trade by better providing for consumer needs, the real battle on Britain's beer market is being fought over a core brand focus and ever more stringent efficiency.

S&N, the leading UK brewer, recently sacrificed market share to dump non-core brands and licensing rights for Beck's and Miller.

A recent report on UK brewing by Goldman Sachs​ also warned Heineken could face earnings losses in Britain as it invests in the re-launch of Heineken as a premium brand.

S&N, meanwhile, is now focused on its big four - Foster's, John Smith's, Kronenbourg 1664 and Strongbow (cider) - after previously admitting it had underspent on brand promotion relative to its peers. Marketing spend on these brands rose 15 per cent in the first half.

And the firm said these four had increased volumes by more than five per cent in 2005, despite total UK beer market volumes dipping by three or four per cent.

A similar success story applies to Greene King, a relatively small brewer, though leader in the real ale segment. The brewer focused on promoting three big brands - Old Speckled Hen, Abbot Ale and IPA - and recorded solid sales rises as a reward.

IPA has now replaced Tetley's, owned by Carlsberg, to become the number one cask beer brand in the UK, while Speckled Hen recently signed a deal with Tesco.

The core brand marketing focus is being largely funded by cost-saving strategies.

S&N said it had now realised £49m in yearly cost-savings and expected this to rise to £60m by the end of 2006. Both it and Greene King have closed breweries to keep their businesses efficient.

Slimming down on both costs and brands is also a reaction to tough conditions on the UK beer market.

Goldman Sachs said recently that the UK was the slowest growing of the world's major beer profit pools, with volumes expected to remain flat at best until 2010.

Retailer price pressure and a drop in consumption, from almost 10 pints a week to a little more than six between 2000 and 2003, pose major problems.

Goldman said the industry needed to wrestle some control over pricing back from retailers alongside increases in marketing spend if it is to drive up returns.

But then the UK is also one of the most fragmented of the world's top 20 beer markets, and the nation's supermarkets have become notoriously powerful so this may be tough.

In the mean time, S&N's core brand-efficiency drive appears to be holding up in the UK.

And, of course, the group has its Russian joint-venture with Carlsberg, Baltic Beverages Holding, which continues to buoy sales for the whole group against difficult conditions in Western Europe.