Recession bites grog sales

Fairfax

BOOZE: The recession is starting to bite the liquor industry as consumers cut back on their favourite tipples.

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The recession is starting to bite the liquor industry as consumers cut back on their favourite tipples.

"People have said for a long time that beer is recession-proof. Well, that's not the case," said DB Breweries corporate affairs manager Mark Campbell.

"People are trading down. Where they were spending $20 on a pack of premium beer, now they'll spend $12 on a budget beer. So the margin that was there 12 months ago is certainly not there now."

Sales of beer were also being hit by some people switching to wine "because there's such a surplus of good quality wine on the market and it's cheap", Campbell said.

Pubs and bars were also being affected as many people opted for having a drink at home instead of going out.

"There's no doubt they are having tougher times because people aren't going out as much. They are sitting at home and watching a DVD on the big screen with a couple of beers or a bottle of wine. So, clearly that's affecting everyone," Campbell said.

Last week the country's largest winemaker, Pernod-Ricard, which owns brands including Montana, Corbans and Church Road, said it had commenced negotiations with staff to restructure its sales force.

Another who has noticed the tougher times is Peter Murphy, chief executive of Independent Liquor which distributes brands including Seagers gin, Black Heart rum, Woodstock bourbon and Haagen, Carlsberg and Grolsch beers.

Melbourne-based Murphy took over Independent's operation on both sides of the Tasman in March when Doug McKay stood down as executive chairman, although McKay remains a director.

"The market is tight because the economy's pretty tough at the moment so there's this softness across the industry," Murphy said.

Independent had recently laid off some staff from its New Zealand operation.

"There are some people who have moved on because we are reassigning resources into other areas as we look for new growth categories to move into. It's not done to take costs out. There's none of that going on. We are pretty happy with the way the business is performing in New Zealand," Murphy said.

However, the company is facing a much harder time in Australia, which accounts for about 60% of its business. As well as its beer and spirits brands, Independent is a major producer of premixed spirit drinks, sometimes referred to as alcopops because of their appeal to younger drinkers. Independent's brands include Vodka Cruiser, KGB and Woodstock.

Fifteen months ago the Australian government increased excise tax on alcopops by 70% in an effort to curb youth drinking.

Murphy said this pushed up retail prices in Australia by about 50% and this had caused a "sharp decline" in its Australian business. The company was considering closing its Melbourne plant, which supplied the Australian market.

It would then consolidate its manufacturing operations at its NZ plant in South Auckland. "It's not something we'd like to do ideally, but we might be forced to," Murphy said.

The downturn in the Australian business is likely to be a severe blow for the company because, prior to the increase in excise tax, the Australian operation was believed to account for the largest portion of the company's profits.

Independent's accounts for the year to September 30, 2007, the most recent that are publicly available, show it made an operating loss of $31.5m and had debt of $712m.

The company was purchased by a private equity consortium, including Pacific Equity Partners and CCMP Asia, for $1.25 billion in January 2007.

- © Fairfax NZ News