Lion pricing fiasco hits profit

Rob Murray

Kiwi drinkers choked on Lion Nathan's beer price rises last year and the Australian-based brewer paid with lower revenue and profits, it said yesterday.

The Japanese-controlled company lost considerable market share and, in a loss of face, had to reverse most of the price rises of June.

Lion's chief executive, Rob Murray, told a briefing on the March half-year result that there was insufficient "competitive will" in New Zealand to make price hikes stick.

"We've recognised reality and sharpened our price points to get our market share back."

Overall, the group turned in a healthy 11 per cent jump in its half-year net profit (excluding one-offs) of A$127.6 million ($136.5 million).

If the sale of the unprofitable China brewery last year was included, profit was up 52 per cent.

However, New Zealand returns plunged 8.8 per cent.

Ebitda (earnings before interest, tax, depreciation and amortisation) from this side of the Tasman fell to $46.4 million and revenue dropped to $236.9 million from $255.3 million.

Lion's market share fell to 50.3 per cent from 52.8 per cent a year earlier and 53.3 per cent in March 2003.

The Sydney-based brewer said it would spend $21 million on developing a brewery in Auckland, on the Newmarket site of its present brewery. Murray said the project would be the biggest single spend in an A$100 million infrastructure capital investment programme between 2006 and 2009.

Fixing New Zealand's operations is top of the agenda of the British-born Murray, who came from Nestle to Lion in July shortly after the trouble here began. But the fix will not be quick.

New Zealand earnings are forecast to be down 7 per cent for the full year and then flat in 2006 and 2007. Meanwhile, the group is on track for a 15 per cent lift in full-year profits.

Murray has instigated a "deep dive" strategic review that he said had already produced results in the past couple of months, including a lift in grocery market share from 46 to 49 per cent.

Details of what the review involved were sensitive in such a competitive market.

"I've not seen many boxers being successful when they tell someone they're about to hit them," Murray said.

The review will be completed at the end of this financial year.

"One thing is for sure about our New Zealand brands business, we need to be competitive in that environment, but we probably can't cost-cut our way to success in future," Murray said.

Lion's price hikes coincided with "dreadful" Christmas weather, the Holidays Act that cut trading hours and the smoking ban in pubs and cafes. It was met by aggressive pricing from DB, particularly with its premium brand, Heineken.

The local beer market, having being fairly steady in the past few years, shrank by 3.5 per cent.

Murray said the mainstream brands Speights, Lion Red and Waikato had experienced "an unacceptable price and volume trade-off in the last six months".

Although Lion's figures were exaggerated by reduced stocking, some make alarming reading. Lion Red dropped 16 per cent in volume, Waikato 9 per cent, Speights 6 per cent and Stella Artois 11 per cent. Of the mainstream brands only Macs, up 8 per cent, and Steinlager, up 1 per cent, registered increases.