S&N hands distribution arm to joint venture

By Chris Mercer

- Last updated on GMT

Related tags Brand United kingdom Brand management

Britain's biggest brewer, Scottish & Newcastle, has spun off
its distribution arm into a new joint venture firm, as it looks to
lose rising costs and focus on building brands.

Scottish & Newcastle announced it would set up a 50-50 joint venture firm, to include 22 of its UK depots and 700 vehicles, with global logistics specialist Kuehne + Nagel.

The venture firm will contract Kuehne + Nagel to provide nearly all of S&N's distribution needs in the UK for 10 years, and will be free to pick up extra contracts from other companies. Kuehne + Nagel will form a new division, KN Drinks Logistics (KNDL), to meet the task.

The move leaves S&N free to focus on brand building, and should also help it to further insulate against margin erosion at a time when many food and drink firms face intense pressure from soaring input costs.

Profitability in drinks distribution is traditionally lower than in production.

S&N said it expected to make annual cost savings of £5m, starting 2007, from the joint venture deal, and will receive a payoff of around £30m from the venture itself.

S&N warned at its 2005 results conference earlier this year that it was "not immune"​ to cost pressures. The brewer spent 2005 working to cut expenses and said it expected to be making £60m annual cost-savings in the UK by the end of 2006.

The logistics joint venture deal will also leave S&N free to improve margins and sales through brand growth.

S&N's new core brand focus on John Smith's, Foster's, Kronenbourg 1664 and Strongbow (cider) helped it to a four per cent sales rise and a 9.5 per cent jump in profits in 2005. It previously admitted it had underspent on brand promotion relative to its peers.

The brewer recently paid £309m for the rights to the Foster's beer brand in Europe, Russia and the surrounding CIS states.

Foster's has been one of the fastest growing beer brands on a rather stagnant European market over the last few years, and S&N, which already held the licence to brew and market Foster's in Britain, grew Foster's lager sales by 10 per cent in the UK last year.

The group has also upped its focus on research and development spending, and said it was looking to use its new Super Chilled cold beer technology to improve beer sales across Western Europe, particularly France.

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