Greene King leaps into Scottish beer

By Chris Mercer

- Last updated on GMT

Related tags: Greene king, Beer, Scotland

Greene King's deal to buy Scotland's largest independent brewery,
Belhaven, is a gamble yet adds evidence to the need for
consolidation in UK beer.

Greene King agreed to buy Belhaven's shares for £187m as well as take on £67m of the Scottish brewer's debts.

The deal, thought by some analysts to over-value Belhaven, represents Greene King's first great push into Scotland.

And the southern brewer called the deal a "hand in glove fit"​, with Belhaven Best Scotland's leading draught ale and the company as a whole having recorded 15 years of continuous growth.

Greene King's IPA brand has already displaced Tetley's Bitter as Britain's number one cask beer brand, and the firm recently recorded 5.2 per cent sales rise in its brewing division (to £111.6m) for the year up to 1 May.

The brewer's move for Belhaven therefore cements its rather unique position in Britain's beer market, successfully floating between the big industrial producers like Scottish & Newcastle, but with more power and better resources than Britain's smaller independent breweries.

However, the deal does carry risks. The Scottish parliament is set to introduce a pub smoking ban next year and Jeff Myers, managing director of Belhaven's pub division, said this would bring a "period of uncertainty"​ to the whole sector.

Belhaven said it had already begun adapting premises to accommodate smokers in outdoor areas.

In any case, the experience may serve as a test run for Greene King, which, alongside all brewers operating in the UK, has been told by the UK government to expect some kind of nationwide ban by the end of 2008.

Rising costs are another problem that Belhaven will pass on to Greene King.

"At the brewery, energy, effluent treatment and water costs have risen sharply. In drinks distribution, the cost of fuel continues to escalate and we have incurred higher overhead depreciation and finance charges as a result of expanding our warehouse facilities in Stirling,"​ the firm said in its recent results statement.

Again, Greene King will have to swallow these at first but the very problem also displays the need for consolidation in the UK beer industry.

The country has one of the most fragmented of the world's top 20 beer markets, and companies need to wrestle some control over pricing back from retailers, alongside increases in marketing spend, if they are to drive up returns, according to a recent report by Goldman Sachs.

Greene King has already proven its skill in this area with its own big three - IPA, Old Speckled Hen and Abbot Ale - showing it is possible to attract new, young consumers to what was once an 'old man's drink'.

Related topics: Beer, Wine, Spirits, Cider

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