KEY POINTS:
Breweries need to innovate as they face increased margin pressure and competition from trendier alternatives, say industry leaders.
The managing directors of the two titans of New Zealand brewing, DB and Lion Nathan, spoke to the Business Herald ahead of their keynote address at the Institute of Brewing and Distilling's 2008 Convention, which runs until Thursday in Auckland.
DB Breweries managing director Brian Blake said a critical issue for the industry worldwide was margin pressure as raw materials and packaging costs soar.
Imported malt prices have soared 50 per cent over the past year, while the cost of aluminium has risen between 30 and 40 per cent. In addition, transport fuel costs have risen between 50 and 60 per cent.
"You'll see worldwide over the next year some quite significant price increases in the industry to recover those costs."
In New Zealand, pressure also comes at the retail end as supermarkets controlled by Progressive Enterprises and Foodstuffs become increasingly the main point of sale for beer, which in turn puts margin pressure on producers.
In the past, breweries tended to dictate pricing in the market, said Blake.
"The pricing now is really dictated by the retailers. So we're caught a little bit - and that's one of our big challenges - between these escalating costs on the input side and the quite competitive pricing situation in the market."
He said competition from New Zealand wines and the trendier ready-to-drink alcohol mixes had also seen the beer market remain reasonably static, although some growth has been experienced with the new premium brands over the last two to three years.
"I think that reflects beer fighting back a little bit in terms of the market that's been taken off them by RTDs and wine. Like any industry we need to adapt."
New drinkers were looking for slightly different tastes.
"The traditional favourites in our brand portfolio will always be there, but we need to be detecting changes in terms of what consumers want."
Brands such as Summer Ale have helped convert females, conventionally non-beer drinkers.
"There's always a traditional element related to beer because it has been around for a long time, but the challenge to us as marketers is how do we retain the history and the tradition of beer but also make it contemporary."
Lion Nathan New Zealand managing director Peter Kean said "premiumisation" had helped maintain growth as has being attuned to consumer cultural shifts through products such as naturally brewed beers, lower-carb and lower-alcohol beers. Steinlager Pure had been a "massive hit".
He expects high commodity prices to continue in the near future but sees opportunities too.
"It won't get any easier out there but we need to be in charge of our own destiny. We need to innovate, we need to pick trends. Sometimes we need to understand fashion in terms of all business not just our own."
Last held in New Zealand in 1990, the convention brings together more than 400 scientists, brewers, distillers, technicians and craftsmen from 24 countries to discuss the challenges.
TRENDY TASTES
Initiatives from the beer industry to combat competition include:
* Summer-themed beers, such as Monteith's Summer Ale.
* Low-carb beers.
* Low-alcohol beers.
* Premium beers, such as Steinlager pure.
