IT’S A JFK CONSPIRACY

By Ian Fraser

Sunday Herald

January 14th, 2001

THE latest JFK conspiracy theory is not yet another take on the assassination of president John F Kennedy. Nor is it a twist left unturned in the eponymous movie by Oliver Stone. No, it’s a tale of ordinary brewing folk and how the twin drivers of consolidation and globalisation appear to be forcing them to deprive Scottish drinkers of some of their favourite ales.

Scottish & Newcastle’s brewing arm Scottish Courage is poised to become the UK’s biggest brewer again now that Belgian rival Interbrew has been asked to scrap its £2.3 billion acquisition of Bass. S&N is now seeking to reposition itself as a global brewer along the lines of Holland’s Heineken or Anheuser-Busch of the United States.

A key milestone along S&N’s journey of transition came last year. This was the £1.7bn purchase of Kronenbourg from the French food and drinks group Danone. Once this beer had been swallowed, the Edinburgh-based brewer followed it up with a chaser in the shape of a 49% stake in the Portuguese beer company Central de Cervejas and by selling off the Center Parcs holiday business to Pierre & Vacances and venture capitalists at Deutsche Bank. But splashing out on foreign beers and getting out of the incongruous leisure business is not enough for S&N to achieve its ambitious goals.

To metamorphose into a global company, it also has to reassess how it allocates its marketing resources.

Enter the so-called “JFK conspiracy”. JFK, in fact, stands for S&N’s three pillar brands – John Smith’s, Foster’s and Kronenbourg. Industry sources claim that S&N’s Scottish Courage arm is already concentrating its UK marketing firepower on these three mega-brands at the expense of “regional” brands such as McEwan’s, Younger’s and Theakston’s.

Ultimately, S&N wants to focus its resources on brands that are deemed capable of crossing borders and appealing to beer drinkers from Buenos Aires to Bangkok and from Dortmund to Detroit.

Fitting the bill perfectly is Kronenbourg – a brand with authentic Alsatian origins, which dates back to 1664. It has been given a contemporary and sexy image through the “femme fatale” television commercials and, arguably, has a less challenging taste than some of S&N’s regional ales.

The danger is that brands such as McEwan’s, Younger’s and Theakston’s are going to get left out in the cold – or are already shivering. All three have a strong local heritage and a powerful following among regional consumers – some of whom grew up reciting jingles such as “McEwan’s is the best buy, the best buy in beer”.

But the brands are not considered by S&N to possess either the stature or the image needed to become the alcoholic versions of Coca-Cola or McDonald’s. Trade sources suggest that Scottish Courage is already starving these brands of the lifeblood of marketing support.

One industry analyst remarked: “In spite of occasional bursts of activity – such as we saw last year for McEwan’s SPA – the overall trend is that Scottish Courage is allowing these brands to wither on the vine. Eventually they will die.”

So what does JFK really stand for? Pat Duffy, editor of Scottish Licensed Trade News, said: “The JFK policy means that Scottish Courage’s marketing budget is being concentrated behind John Smith’s, Foster’s and Kronenbourg. Most other brewers have been focusing on a few big names for years. But Scottish Courage has gone down that route later than some of the competition. The whole idea of companies consolidating is to achieve synergies and economies of scale.”

Some Scottish-based publicans believe that Scottish Courage is already striving to wean them off the big-selling McEwan’s brown ales – which include McEwan’s Export and McEwan’s 70/- and 80/- – and encouraging them to replace these with English bitter John Smith’s.

John Smith’s entered Scottish & Newcastle’s quiver of brands back in 1995 when the Scottish company bought Courage. The £430m deal propelled Scottish Courage into pole position as the UK’s biggest brewer.

The acquisition also included the UK and European rights to Australian lager Foster’s, whose parent company Ellders IXL had paradoxically failed to take over S&N in 1988.
Jimmy Brownlee, licensee at the Planet Bar in Dundee and president of the Dundee Licenced Trade Association, detects a hidden agenda to recent changes made to the McEwan’s brand.

Last May, Scottish Courage caused a furore among some publicans by surreptitiously reducing the alcohol content of McEwan’s 80/- at the same time as introducing a new ale/lager hybrid called McEwan’s SPA. Brownlee believes that these changes were a deliberate ploy to weaken the McEwan’s brand ahead of pushing John Smith’s into the Scottish licensed trade.

Brownlee said: “McEwan’s is successful, so why did they change it? They are now the biggest brewer in Britain. Perhaps they would prefer us to be buying John Smith’s. But, if that’s their game plan, I would urge them to reconsider. John Smith’s only works in certain places.”

Duffy agrees: “There’s no doubt that they will attempt [that]. But I don’t think that John Smith’s will take off with the Scottish trade. It’s a different market. All the big companies are keen to focus on a limited number of core brands. But this does not mean they have to kill off their other ones. But it does mean they give them [the smaller, regional brands] a lot less marketing support.”

Duffy says last year’s “Good Progress” campaign for McEwan’s SPA was the first big advertising campaign for a Scottish brand for some time. Otherwise, S&N’s Scottish brands seem to have been starved of “above- the-line” investment.

He said: “John Smith’s, Foster’s and Kronenbourg are getting the big money behind them and the regional brands are having to make do with below-the-line and in-pub promotions. But I would stress that this phenomenon is not exclusive to Scottish Courage. Tennent’s used to be advertised on television 48 weeks out of 52. Now it’s lucky to be on television for four weeks a year.”

Duffy said Tennent’s is instead being heavily promoted through sponsorship of the Scottish Cup and the T in the Park pop festival.

The other issue facing brewers is that the UK beer market is in seemingly irreversible decline. The overall beer market has been shrinking for the last 20 years, making it extremely difficult for brewers to create sustainable growth without cannibalising their existing UK brands. In the 1990s, the UK market shrunk by about one-third – at a rate of around 3.5% per year.

Industry sources blame the doubling of VAT in the Margaret Thatcher years and Geoffrey Howe’s 4p on a pint in his 1981 budget. The “beer orders” of 1989, which forced brewers to offload their vast tied estates, further queered the brewers’ pitch. But other reasons for this brewers’ droop is that younger drinkers have been switching to other drinks, “session” drinking is becoming less popular and more sophisticated drinks – such as wine – are gaining in popularity.

In such testing circumstances, brewers really only have two choices. One is to get out of brewing altogether, as Bass and Whitbread have done. Both are now focused on leisure activities and hotels.

The alternative is to build global beer brands capable of taking on the mighty Budweiser, Heineken, Stella Artois and San Miguel – with obvious consequences for their local branded heritage.

As part of its transformation programme, S&N is also reviewing whether owning thousands of pubs up and down the country is really such a good idea. At a recent results conference, chief executive Brian Stewart admitted that many of the 2300 pubs under S&N ownership are experiencing falling sales. Many are in the red. The 1999 £1.1bn acquisition of Greenall’s brought an additional 750 outlets but it appears to have backfired. Analysts now believe that S&N overpaid for Greenall’s and view the acquisition as a “bad thing”. Stewart now says that the company is carrying out “a unit-by-unit review of our total retail estate”.

But even this does not go far enough, according to Nigel Popham, a drinks analyst with stockbrokers Teather & Greenwood. “Unless they pull out of pubs altogether, they’re going to struggle in the next couple of years. They’ve got to pay £1.3bn within two years for the rest of Kronenbourg. If they sold off the pubs, the market would applaud them as it would enable them to focus on higher-value activities,” he says.

But he warns that now is not such a good time to be getting rid of pubs, partly because the venture-capital market has “tightened”. Popham adds that, while around 600 of S&N’s units are “doing well”, more than 1000 are “struggling to varying degrees”. “If they stay in pubs, they’re going to struggle to maintain their international expansion programme. They will certainly need to do a rights issue and could become a takeover target,” says Popham.

However Scottish & Newcastle’s cloud has a silver lining. Popham says that the government’s decision to block Interbrew’s acquisition of Bass is “not bad news for S&N in the medium term. They should pick up some sales from the disruption alone.” The deal is now seen as a spectacular misjudgement by Interbrew chief executive Hugo Powell. It would have given Interbrew a 32% share of the UK beer market – just ahead of Scottish & Newcastle’s 29% share.

But now S&N is back in pole position and has gained some welcome breathing space. If, as seems likely, Tennent Caledonian is sold off separately by Interbrew, possibly to venture capitalists, it would enable the Edinburgh-based brewer to weaken the stranglehold of Tennent’s over the Scottish lager market. S&N has the firepower to achieve that with the “international” brands F and K.

SPA STRUGGLES TO PROVE ITS FROTH IN THE HYBRID MARKET

ABERDEEN drinkers have since March been able to try out McEwan’s SPA, a variant on theMcEwan’s theme that was a significant new launch for Scottish & Newcastle last year. The new launch has been firmly targeted at younger and female drinkers – those who might otherwise steer clear of beer – in an attempt to bolster the declining ales market. Last year Tony McGrath, managing director of Scottish Brewers, said the brand was designed “to reignite McEwan’s popularity in Scotland”.

But anecdotal evidence suggests McEwan’s SPA has not been the hit S&N was hoping, while industry insiders suggest that sales are disappointing. The product was meant to fill a gap in the market – somewhere in the no-man’s land between lagers and ales. When developing the project, the marketing boffins at Scottish & Newcastle must have decided that drinkers were crying out for “lager-style refreshment” coupled with the “fuller taste and body traditionally associated with ales”. The result is a gassy, weak beer with plenty of critics.

Unusually for a regional ale brand, the launch was backed up with a £2 million ad campaign. Since May the product has been rolled out across the rest of Scotland and is now in about one-in-10 hostelries. Launch commercials used the slogan “Good Progress”, but perhaps tried too hard to be funny and ended up falling flat. Produced by London agency TBWA, they featured bizarre scenarios such as knights leaping about in bouncy castles, pork pies flattening canapes and bottom-feeding unevolved fish.

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Posted by Ian Fraser on Jan 14 2001. Filed under Article Library, Investigations. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry