Beer Market `risks Same Fate As Petrol'
Sydney Morning Herald
Thursday October 29, 1998
Australia's beer market is in danger of suffering the same fate as the petroleum industry, where producer ownership of retail outlets has effectively strangled competition, Lion Nathan's chief executive, Mr Gordon Cairns, warned yesterday.
Mr Cairns, announcing a "watershed" $NZ136.1 million ($116 million) net profit for the year to August 21, said Lion expected to increase its profit in Australia in 1998-99 and was considering a share buyback.
Lion was committed to selling its Pepsi franchise in Australia and New Zealand, Mr Cairns said. Pepsi, valued around $NZ100 million, reported EBIT of $300,000 - a substantial turnaround from last year's $NZ11.3 million loss.
The group, which produces Tooheys, Hahn, XXXX and Swan Lager, was poised to launch a strategy to counter rival Foster's Brewing Group's Carlton and United Breweries' July move to beef up its hotel portfolio with the $300 million purchase of Austotel, he said.
The trend towards brewer owned hotels was "unfortunate", Mr Cairns said, but "if a competitor makes a move, you can't sit there and do nothing".
Producer ownership of downstream retail outlets in the petroleum industry resulted in the elimination of independent outlets, less competition and higher prices.
"Our philosophical point of view is that there is a danger that will happen . . . at the end of the day, it's not good for the consumer, " Mr Cairns said.
"Our history has been that we are not very good hoteliers, we are brewers," Mr Cairns said.
Lion reported a 54.5 per cent rise in 1997-98 net profit, from $NZ88.1 million last year. The final dividend was a steady 8c, taking the full year payout to a steady 16c.
Earnings before interest and tax from Australia were up 11 per cent to $NZ286 million.
Despite a third quarter market share slump, caused by a "ferocious" attack from CUB, Lion's Australian market share was steady at 41.3 per cent. Volume growth was in line with market growth of 1.7 per cent.
"I'm very confident the [Australian] market will grow again next year," Mr Cairns said.
Lion reported a substantially increased loss of $NZ29.8 million in China versus an $NZ8.8 million loss last year. About $NZ5 million came from the 20 per cent devaluation in the Chinese yuan against the NZ dollar. Lion was investing $NZ20 million on marketing and brand development and expected to "take money out" of China after five to 10 years, Mr Cairns said.
NZ earnings declined 3.5 per cent to $NZ100.1 million, as the market shrank and Lion, the dominant player, conceded market share to its rival DB Breweries.
Lion shares rose 8c to $4.22.
© 1998 Sydney Morning Herald
