SABMILLER will work quickly to repair the prickly relationship between Foster’s and its two biggest customers, supermarkets Coles and Woolworths, pushing for a collaborative approach to kick-start stalled growth in the beer category rather than relying on heavy price discounting to drive sales that can prove unprofitable.
Chief executive Graham Mackay will seek to hit the ”reset” button on the key relationship between Foster’s and the retailers after years of squabbles around heavy discounting, promotions and supply chain management.
”We think that the relationships with them [Australian supermarkets] and management of those retail relations have been neglected and that’s a fairly common cause in Australia. So, we think there is work to be done there,” Mr Mackay told analysts last week.
Advertisement: Story continues below ”We just think getting in there and doing a better job with them and working together with them will yield results.”
In particular, the Anglo-South African brewer is expected to implement its Building Execution Excellence at Retail (BEER) initiative in Australia if its $12.3 billion takeover bid for Foster’s is completed, after a highly successful launch of the strategy in North America lifted growth.
The BEER strategy, which enables SABMiller to measure and improve the quality of service it offers to retailers, has been implemented in part in other regions and in parts of Europe where it shares IT platforms with key supermarket customers.
”We believe that our customers [retailers] and ourselves should take a shared view of growing the value pool, thinking and acting deliberately together in this endeavour,” Mr Mackay said as he sold his $5.5325-per-share offer for Foster’s.
”Drawing from our experience, particularly in the US, we will adopt this shared partnership approach [in Australia] to value creation with joint business planning and enhancement of the shopper experience in off-premise channels.”
The BEER initiative was an immediate hit for SABMiller in the US, with its MillerCoors unit category leader in 30 per cent of key account chains after the introduction of BEER – up from 24 per cent in 2008. Retailers also won, with stores linked to the brewer’s strategy outperforming unaligned outlets volumes and sales.
”MillerCoors’s revenue through these outlets is up almost 5 per cent, a win not only for the business but also for the retailer,” a SABMiller document says.
Foster’s has had an uneasy relationship with Coles and Woolworths of late as stagnant volume growth has seen the retailers slash prices even as they have also been introducing their own home-brand beers that directly compete with Foster’s beers.
Their squabbles flared up earlier this year when Foster’s stopped the delivery of tens of thousands of cartons of VB, Carlton Draught and Pure Blonde to Coles’ First Choice liquor stores and Woolworths’ Dan Murphy’s chain after a price war drove the price of slabs so low that Foster’s believed its brand equity was being damaged.
The huge discounting has been partly driven by shrinking growth for beer as a beverage category. Beer volumes are down 6 per cent in 2010-11 – dropping 7.3 per cent in the first half and 4.6 per cent in the second half.
”We believe there are opportunities to rejuvenate the beer category and enhance Foster’s position in it,” Mr Mackay said.
Dan Murphy’s national merchandising manager Stephen Donohue welcomed the new approach from SABMiller and Mr Mackay.
”We are always open to furthering more collaborative relationships with our suppliers as they tend to result in a better outcome for both parties and deliver a better deal for customers,” Mr Donohue told BusinessDay.
A spokesman for Coles said: ”Foster’s is a key partner in our liquor business, and we look forward to continued collaboration with the company under its new ownership structure.”
Mr Mackay said despite the consolidation of the supermarket sector in Australia and the dominance of the two leading players, SABMiller could work with both retailers to grow the size of the beer market.
”There is no reason why we shouldn’t improve relationships and deal well with a concentrated trade. That does happen in other parts of the world and obviously we are use to dealing with major key account customers.
”We will reach out to key retailers with a view to building an improved customer relationship model, centred on mutually beneficial solutions for brand-led growth.
”We will improve revenue and channel management of the business through developing the relationships between Foster’s and its retailer customers and thereby raising beer’s appeal to shoppers at the point of purchase.”