Foster’s Group yesterday posted its half year results which showed that Australia’s largest brewing company had continued to lose its share of the lucrative Australian beer market.

Wine was again the major drag on the company’s results, with the beer business showing a 5.7 per cent increase in revenue despite a 1.1 per cent fall in volume, driven mainly by VB’s falling market share. In high points for the company, Corona enjoyed growth of 13 per cent in value terms and 16 per cent in volume terms over the past year highlighting the importance of the import. Earlier this month Fosters signed a new licensing deal for the beer, which is believed to generate more than $65 million in earnings for the company. The Carlton brand saw net sales revenue up 12.0 per cent and in craft beer, the Matilda Bay brand increased net sales revenue by 62 per cent driven by Fat Yak and the December quarter launch of Big Helga.

The results confirm significant structural changes that are occurring in the Australian beer industry. While Foster’s lost nearly 3.5 per cent market share between 2004 and 2009, the company’s major competitor Lion Nathan only gained .3 per cent over the same period. The brewing industry’s other players, including Coopers, Little World Beverages (Little Creatures), Pacific Beverages (Bluetongue) and the microbreweries, together gained more than 3 per cent during the period. During the first half of the year alone Foster’s beer volume was down 1.1 per cent against industry volume which was up 1 per cent.

An industry analyst has told Australian Brews News that while the results were disappointing, in reality they weren’t of themselves “that bad”.

“They brought forward a lot of marketing investment. They’ve been losing share for some time, but in terms of profitability it wasn’t that bad,” he said.

“VB is the problem brand and they continue to lose share, but what’s happened over the last year or so is the strong growth they’ve been realising in Pure Blonde in particular has started to subside and it hasn’t compensated for the loss of VB.

“In reality it’s a combination of all the factors. It’s Little World Beverages, Coopers; it’s the 100 or so craft brewers which are still tiny but add up to something. It’s the private labels, it’s a whole range of competing aspects of the market that weren’t there five years ago.

While the analyst said Lion Nathan are being a much more formidable competitor than they have been historically, both they and Fosters were facing competition.

“It’s complacency that both brewers were enjoying such great times from a structurally beneficial beer market and rational pricing,” he said.

“Unfortunately that’s kind of unwinding now with increased competition and much more challenging customer negotiations with concentration at the retail level that it’s becoming more difficult.

“The beer world is a different place now.”

It is ironic for the brewing companies, which have benefited considerably from their effective duopoly for more than a decade, that one of their biggest threats now is the competition posed by the retailing duopoly.

Over the past few years Coles and Woolworths have staked out significant holdings in the retail liquor sector. In August 2008 market researchers IBISWorld estimated that between them Woolworths Ltd and Coles Group controlled more than 45 per cent of the sector. Woolworths had 25 per cent share through Woolworths Liquor, Dan Murphy and BWS chains, while Coles commanded 20 per cent through Liquorland, Vintage Cellars and 1st Choice.

In addition to controlling a huge section of the retail market, both have started to build up substantial portfolios of private label and imported beer. Woolworths distributes Bitburger, Lowenbrau and Amsterdam Mariner, while Coles sells Hollandia, Cantina Cerveza, Bavaria, Estrella Damm, Harviestoun, La Trappe and Konig Pilsner. Coles also contracts the Lion Nathan-owned Boag’s Brewery to make Tasman Bitter, Tasman Gold and Hammer ‘n’ Tongs for the chain.

Woolworths entered the private label beer market in 2008 when it contracted Independent Distillers to brew Platinum Blonde. In 2009, Woolworths acquired a 25 per cent stake in WA’s Gage Roads Brewing to further their ambitions and speculation is currently rife that they are considering buying Independent Distillers outright.

Both retailers are believed to be exerting considerable pressure on the major brewers to reduce prices, with a source close to Independent Liquor quoted in the Sydney Morning Herald in January saying a partnership would “enable Woolworths to increase its house brands, but it would give access to costings that could be used to get better terms from the bigger suppliers, Foster’s and Lion Nathan.”
”They can say, we will do it ourselves if you don’t give us certain products at a specified margin,” he said.