New Zealand: DB Breweries’ volumes 10% up but price wars hit margins

DB Breweries, for fiscal 2007, is tracking to meet last year's net profit, and has had a 10 per cent improvement in beer volumes during the summer, managing director Brian Blake says, according to The Dominion Post, February 19.

However, while volumes improved, margins were slashed during an 18-month price war between DB and key competitors, he said.

DB is 100 per cent owned by Singapore-based Asia Pacific Breweries, in turn 42.5 per cent owned by Dutch-based Heineken. Since delisting in September 2004, it has not reported a New Zealand bottom line result.

APB disclosed that in New Zealand in the first quarter to December 31, 2006, DB's product volume grew by 12 per cent.

Mr Blake said that in the four months to January 31, beer volumes were about 10 per cent ahead of the same period a year earlier, despite a cool summer. But because of lower margins as a result of price competition, the full-year net profit was on track to match last year.

APB said DB's profit before interest and tax declined by 12 per cent in the first quarter. DB South Island regional manager Stu Hall said the Christmas period had been perhaps the toughest ever in terms of narrow margins due to competition. "There's been some really competitive pricing through December, particularly in the grocery channel."

Mr Blake said that with beer being a "loss leader" in supermarket pricing, now "was probably the lowest we've seen in 10 years".

Though price wars had previously been cyclical, with a diversified ownership of liquor outlets there was no apparent end in sight to the tight margin scenario.

Even premium brands such as Heineken had been discounted in terms of supermarket prices, but this had not damaged that price point, Mr Blake said.

"I don't think there is any brand in the market that has not been affected by the price activity. We become concerned if premium brands are discounted too aggressively too often."

Competitors included Lion Nathan and Independent Distillers, which was bought by a private equity pairing, Pacific Equity Partners and CCMP Capital Asia, prepared to outpay what DB considered before it withdrew.

Bidding started in the wake of the helicopter death of Michael Erceg in November 2005. DB remained developing further ready-to-drink products, and innovative new beer products, Mr Blake said.

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