In the next few weeks Carlsberg-Tetley will announce the results of
an internal review of its UK brewing business, following the decision by
trade and industry secretary Margaret Beckett to block its proposed
merger with Bass Brewers.
The decision was a clear statement that the Labour government is not
going to allow the concentration of power at the top end of the brewing
industry to increase.
In this, the government differs from the Conservatives, who by allowing
the merger of Scottish & Newcastle and Courage in 1995, aided the rise
of the four-company power base dominating UK brewing today.
Although Beckett was no doubt hoping her decision would stem the tide
toward further brand concentration and rising retail prices that is
currently sweeping the industry, the ruling has left Carlsberg-Tetley in
That Carlsberg-Tetley has ended up in this predicament, in contrast to
its main competitors Scottish Courage, Bass and Whitbread, demonstrates
the change in market conditions across the industry.
Carlsberg-Tetley’s problems stem from two sources. The first is its lack
of a tied retail estate. Not only would this give the company a
guaranteed long-term distribution route for its brands, it would also
give it a slice of what is fast becoming the most profitable part of the
A head for business
Second, in contrast to Bass, which is currently heading the
premium-packaged lager market with Carling, and Whitbread with its
strong premium branding and high off-trade sales of Stella,
Carlsberg-Tetley has failed to give its brands the key ’added value’
ingredient necessary to ensure success in this highly competitive
As one analyst says: ’They have a flawless record of failure in terms of
new product development. They did a good job of reformulating Carlsberg,
but the difference in profit in selling in the off-trade as a 4.2% abv
rather than 3.2% is frightening. As a brand it is a warhorse rather than
a player. Their strongest brand is Tetley but it is not marketed
Given its lack of tied estate, Carlsberg-Tetley’s brands have suffered
from limited marketing support. It spent pounds 1.6m on advertising
Carlsberg in the year to March 1997, compared with Scottish Courage’s
pounds 4.4m on Foster’s (Register-MEAL).
This is especially relevant in view of the fact that since the end of
the last decade, two factors have become important to success across the
industry - establishing strong brands and ensuring they gain
distribution in both on- and off-trade.
In the on-trade, distribution became an issue following the introduction
of the Beer Orders in 1989. These limited each brewer to no more than
2000 wholly-owned pubs in its retail estate. The subsequent forced sale
of much of the breweries’ tied estates has resulted in the establishment
of new retail-pub chains, many of which have considerable buying
Carlsberg-Tetley, which was originally formed in a joint venture between
Carlsberg A/S and Allied Lyons (subsequently Allied Domecq), has
benefited from a distribution agreement with Allied Domecq Retail, but
this expires in the autumn.
While both its ’headline’ brands, Carlsberg lager and Tetley Bitter,
have a sound following, neither has developed the powerful brand
positioning of other retail-free players, such as Guinness with its
black stout or Anheuser-Busch with Budweiser.
’The purchasing power is increasingly concentrated into fewer hands in
both the on- and off-trade,’ says Dave Carruthers, brands marketing
director of South African Breweries and a brands director at Bass. ’As a
consequence, national account management and negotiation becomes more
important, as does the establishment of proven products that are strong
And as the industry approaches the millennium, the battle to establish
strong brands is expected to become more bloody, both in the on- and the
Battle of the beers
’Brands are now under threat if they are not number one or two in the
market,’ says Carruthers. ’Success now comes from a big brand or from
This situation is exacerbated by additional pressures on the industry,
such as the decline in the beer-drinking population - primarily among
18- to 24-year-old men.
The industry is also facing the steady decline of on-trade volumes with
a parallel, although not corresponding increase in off-trade. Industry
insiders anticipate that by 2000 the take-home industry will be a third
of the market and over the next five years the UK industry is expected
to lose one million barrels in volume terms.
Closely aligned to this is the growth in what the industry terms
’repertoire’ drinking. ’People will now drink across a range of
categories depending on mood, company and location,’ says John Dirkash,
marketing director of Whitbread. ’While people may make a choice on type
of product according to location, the choice is down to the brand.’
It is this, combined with a brand-conscious consumer, which is resulting
in the growth of premium beers and the expansion of new product
categories such as alcopops.
’Four years ago everyone said there was no more room in the market for
NPD, but my view is that the brewers have only touched the surface,’
says Carruthers. ’The industry has got to accept quicker, short-term
It is the one who spots it first and delivers against a gap in the
market who is going to come out on top.’
In its submission to the Monopolies and Mergers Commission,
Carlsberg-Tetley warned that without a merger partner it would have to
scale down its portfolio to its Carlsberg and Tetley brands. It argued
that this would damage its standing in the market (see graphic).
Even so, the company may not have either the economies of scale to keep
production costs down nor the volume of sales to make widespread
While Carlsberg was presenting its worst case scenario in a bid to
persuade the MMC of the legitimacy of the deal with Bass, industry
observers believe Carlsberg-Tetley is likely to struggle. As one City
analyst predicts: ’I just can’t see a logical role for it in this market
in the future.’
The UK’s third largest brewer with around 14% of the market in 1996,
Carlsberg-Tetley, which has no tied retail estate, is the most
vulnerable and its share of the market is expected to drop to around 10%
in the next two years.
C-T was set up in 1992. Following Allied Domecq’s decision to pull out
of brewing, the company sold its 50% share of C-T to Bass in August 1996
with the latter applying to buy an extra 30% of Carlsberg’s shares - the
deal which brought about the MMC inquiry.
Under arrangements set in place prior to the merger, Carlsberg is the
majority owner with 85.1%, and AD has had to buy back 14.99% of the firm
- a sufficiently small percentage of the share capital to avoid being
termed a brewer for the purpose of the Tied Estate Orders.
C-T’s turnover has remained level at about pounds 1bn since 1992, but
operating profits fell from pounds 85m in 1994 to pounds 61m in 1996.
Its largest customer is Allied Domecq Retailing but its supply
agreement, which requires ADR to take 1.35 million barrels of beer a
year at prices advantageous to C-T, is due for renewal. The new contract
may cost the brewer pounds 42m in lost revenue.
C-T is carrying out a review of the business, which could lead to
cost-cutting, closure of two breweries and 20 distribution depots, as
well as job losses.
The company is expected to sell or withdraw its smaller brands, which
include Skol and Castlemaine, to boost resources behind Tetley and
If it chooses to maintain these brands, long-term survival will depend
upon its ability to secure distribution for its brands.
The brewing division of Scottish & Newcastle plc, Scottish Courage is
the UK’s largest brewer with 28% of the market in 1996 and around 2700
tied houses. The company shot to the top of the league in 1995 following
the merger of Scottish & Newcastle and Courage.
Since then the company has worked to integrate two well-fitting
portfolios - although support for both S&N’s Kestrel and Courage’s
Hofmeister was subsequently cut. The company has closed two breweries
and reduced its workforce by around 1800 people, with integrated savings
of pounds 46m to date.
Scottish & Newcastle’s results for the year ending April 27 1997, show
turnover up 12.8% to over pounds 3.3bn. Around pounds 172m of turnover
comes from its retail division, which has around 400 themed sites,
including Chef & Brewer, John Barras & Co, Rat & Parrot, T&J Bernard and
The brewing division’s portfolio includes Foster’s, Kronenbourg, Beck’s
and John Smith’s, sales of which grew last year. The company has made it
a policy not to chase unprofitable volume in the free trade and overall
beer volume dropped 3%. This has not prevented a growth in turnover.
Leading brands contributed to an increase in net margins from 6.8% to
8.2% and the firm remains committed to developing strong ’added value’
brands. However, with a portfolio which relies on licensed brands -
Foster’s, Kronenbourg and Beck’s, an NPD success would doubtless be
Bass Brewers is part of Bass plc, which also owns Holiday Inn Worldwide,
Bass Taverns, owner of the Harvester restaurant, Vintage Inns and
O’Neill’s Irish bar brands, as well as Bass Leisure which includes
bookmaker Coral, and Britvic Soft Drinks. In 1996 the group had a
turnover of pounds 5.1bn, of which 36% or pounds 1.8bn was contributed
by the brewing interests.
The company is the UK’s second largest brewer, with 23% of the market in
1996, having lost its position at the top of the league after the
Scottish & Newcastle and Courage merger in 1995. Bass’s plan to regain
the number one slot by merging its brewing interests with
Carlsberg-Tetley was last month prevented from going ahead by the
secretary of state for trade and industry, Margaret Beckett.
The decision, after a wait of nearly a year, surprised City analysts
and, reportedly, the company itself. Bass, which has long impressed the
City with its NPD record - developing brands such as Carling, Caffrey’s
and Hooper’s Hooch - was expected to do much toward building
Carlsberg-Tetley’s neglected brands portfolio.
Since the arrival of marketing director Seamus McBride, Bass is also
credited with good branding skills and the recent cherry-picking of some
of its senior marketers has established it as the industry’s hothouse
for marketing talent. The company is expected to rally quickly after a
number of recent high profile departures, combined with the year of mild
inertia while awaiting the outcome of the MMC inquiry.
Whitbread plc is made up of four businesses: the Beer Company; Whitbread
Pub Partnerships (WPP), which consists of 2137 tied pubs and 195 free
houses due for disposal in October this year; Restaurants and Lesiure,
which includes Beefeater, TGI Friday’s, Pizza Hut, Thresher Wine Shops
and David Lloyd Leisure; and Whitbread Inns, with brands including
Brewers Fayre and Hogshead.
The group’s financial results for the year ending March 1 1997 reported
a 10% increase in turnover to just over pounds 3bn.
The Whitbread Beer Company boasts Stella Artois, Heineken Export and
Boddingtons among it portfolio. It is the fourth largest brewer in the
UK, with around 13% of the market in 1996.
In the last financial year the company reported a 5.5% growth in sales
volume in a market down 1.6% year-on-year. Whitbread’s best brand
performance came from Stella Artois which grew in volume by 20% to over
one million barrels. Stella is now the biggest-selling premium-packaged
lager in the take-home market.
Whitbread has a strong portfolio and has impressed the City by
establishing strong premium brands such as Stella and Boddingtons,
although both Stella and its leading lager brand Heineken are licensed.
The company has expressed its desire to expand its portfolio and is
putting a lot of effort into NPD.
Industry observers believe Whitbread’s top priority is to develop its
retail presence. ’Whitbread’s heart belongs to retail,’ says one
’It’s the thought of TGI Friday and Pizza Hut which makes their eyes