Trevor
O'Hoy at the pub
Q: Foster's is a stunning Australian success story not fully appreciated by many of today's drinkers. Historically, Foster's led the charge in the 1880s and beyond from older style ales and porters to Australia's current love with icy cold lager. Internationally, Foster's has successfully positioned itself as "Australian for beer" in more than 150 countries, and is the seventh largest and fastest growing beer brand. Some 100 million cartons of Foster's are sold every year! Why is it then is the Foster's brand so weak in its country of origin? The only advertising we have seen was during the Sydney Olympics, and we got the impression it was aimed at foreign journalists rather than domestic drinkers. What happened to Foster's in Australia, and do you have any plans to revive the brand domestically?
A: It’s a tough one. Foster’s Lager had grown up as a mainstream Australian beer, punching at equal weight with VB in our portfolio. When we took it overseas, however, we took the brand slightly up-market and played heavily on ‘brand Australia’ – with international advertising featuring Paul Hogan, iconic Australian imagery and the ‘Australia’s famous beer’ tagline. That turned Foster’s into a top 10 international beer brand.
The flipside to this success was that Foster’s became the beer Australians drank overseas, not at home. Our Australian sales teams focused on the mainstream brands such as Carlton and VB, as well as innovating in cold filtered, craft brewing, dry, low carb and the light and mid categories. Foster’s Lager really didn’t have a champion or new positioning in Australia and its volumes slipped from the late 80s onwards.
There are two things that keep me excited about this brand.
Firstly, it is, and has always been a great beer. In blind tastings, it is still a star performer; smooth, with a perfect balance of bitterness and hops. The second is that it’s a sleeping giant in Australia. After more than 100 years, it still holds a special place in the hearts of Australians as a true national icon. In fact, in most global brand surveys, it remains the most well-known Australian brand – outright. I’m not in a position to share our plans yet, but let’s just say we are not going to let it sleep too much longer.
Q: What was Foster's thinking when it granted a perpetual Foster's brand licence to Scottish and Newcastle in Western Europe in 1995 without any significant royalties back to the Australian company?
A: I maintain there was nothing wrong with our international beer strategy. In a few short years we became a top ten international brewer, at a time when the rest of the industry was just starting to consolidate. We were in the right place at the right time.
We also happened to be running a finance business, a property development business and a hotel & leisure business at the same time, with a less than optimal overseas management structure. We were over-leveraged and shouldered over a billion dollars of losses from our finance division following the stockmarket crash.
When we sold the Courage business to Scottish and Newcastle, there was one thing on our mind – survival. We took some less than optimal long term royalty agreements to maximise up front cash payments and we traded out of those difficult financial times under our own steam.
It’s fair to say we would not sign those types of terms up today, but we are a different company now, in a different financial position.
Ironically,
it was the structure of that licensing arrangement that led S&N to invest so heavily behind the Foster’s brand in Europe.
We were able to claw back some of that value via the $750 million sale
of the brand in Europe to S&N earlier this year.
Q: Twenty years ago drinkers were defined by state borders, and while this is still true to some extent, if we had to pick a domestic national beer VB would be it. Everyone under 40 grew up with "those ads" in the 70s, 80s and 90s, and CUB (owned by Foster's) to its credit has kept the spirit of that campaign alive with more modern versions for younger drinkers. Did VB's national success take Foster's by surprise, and why haven't you pushed it internationally more? Are you perhaps looking at promoting VB in Western Europe, Russia and Turkey following your sale of the Foster's brand in those countries to Scottish and Newcastle earlier in the year?
A: There’s nothing surprising about VB’s success. It’s a great tasting beer, it’s down to earth, understated and unpretentious – just like the average Aussie bloke. We take the ongoing stewardship of VB very seriously. It is our most successful brand and Australia’s favourite beer and we aim to keep it that way.
As for taking VB overseas, we’ve learnt a lot through the Foster’s experience and we are cautious with the potential ‘internationalisation’ of VB. The economics of the international beer market mean it’s hard to take a mainstream beer into a foreign market – as with many brands, what is the ‘house’ lager at home is often presented as a premium brand overseas – a positioning that may not necessarily work for a brand like VB.
One of the many benefits of the sale of Foster’s to S&N is the freedom we now have to take brands from our portfolio of beers into other markets. What we would need to weigh up is whether meddling with VB’s positioning is worthwhile or whether we should focus on brands which already enjoy premium positioning, e.g. Crown or Cascade, or enjoy global interest such as that generated via the Big Ad for Carlton Draught.
Q: You are quoted as saying that "today's consumer has a range of products and sadly no longer are you a VB drinker for life". Is this why Foster's appears to be pushing Carlton Draught as a national brand as well as VB - to give consumers a choice if they no longer go for the dinkum Aussie image of VB? Did the big ad sell some "bloody beer"?
A: Consumption habits have and will continue to change.
People have more choice than ever and therefore their repertoire of brands is expanding. Not only are there several beer categories to choose from but people are now also factoring in wine, spirits, RTDs, cider and non-alcohol brands such as soft drinks and waters.
The majority of consumers are no longer loyal to just one or two brands. Twenty years ago most Aussie drinkers would have happily chosen between a heavy or a light beer. Today, consumers are choosing their drinks based on where they are, what they are doing and who they are with – they might drink VB or Carlton Draught one day and a craft beer, an RTD or a wine the next.
So the take out for companies like Foster’s is that one brand can’t be all things to all people, and it is critical to develop a portfolio of first choice brands for beer drinkers on any occasion.
Carlton Draught is a great example of a brand that is experiencing strong national growth and is now the number one tap beer in the country. The Big Ad certainly contributed significantly to this growth. Not only did it “sell some bloody beer” but it took the world by storm and developed a phenomenal following, topping 3.5 million viewings on line in 132 countries – on the way picking up more than 30 international awards.
Q: Crown Lager is Australia's #1 premium beer. There is an enduring theory that Crown Lager is Foster's that has been matured for a few more weeks. Can you clear this up for us? What is the difference between Crown Lager and, say, Foster's or VB?
A: This
is one of those urban myths – it makes a great story but sadly, there’s
not a lot of truth in it.
Each of our brands has a unique recipe, specification and flavour profile as
well as a unique brewing process. And I can say, categorically, that Crown
Lager, Foster’s Lager and VB are totally different products.
Crown is brewed separately, with selected malt, hops and extended lagering to give the distinctive Crown smooth and creamy finish and texture. About the only thing that Crown, Foster’s and VB share is water and yeast – a proprietary strain of yeast that gives these brands their unique profile.
Q: On a personal note, you were appointed CEO of Foster's after 28 years in the trenches. It is on the record that your package is comparable to other high profile CEOs. Did you ever think that you would be this successful personally? What do you see as your major accomplishment in your time as CEO?
A: At no stage of my long career with Foster’s did I ever consider the possibility of becoming CEO. This was due to many reasons, the major one being at no stage have I not loved the job I was currently doing. In fact, I have always felt that the very best job in the world was my previous role as Managing Director of Carlton & United Breweries (“CUB”). However, when I was eventually asked to take up the role of CEO of Foster’s Group, I couldn’t resist the opportunity and challenge to make Foster’s into the very best in the world in what is does best – and that’s producing, marketing and selling great premium drinks.
As for my most significant achievement, this is probably better assessed by other people. From my perspective it has been in helping to rebuild the once great CUB into a seriously competitive Australian and International drinks business.
Q: While we understand that while overall Australian beer consumption is declining, the premium segment is increasing. Australians are drinking less but better, and are having different beers on different occasions. How important to Foster's are the Matilda Bay brands, and do you see this trend as a threat to your established dominance in the "best cold beer" category?
A: The growth in premium beer, including both imported and craft premium beers, demonstrates that people are becoming more discerning and beginning to develop a sense of diversity - they will trade up for a different experience and are happy to pay for it. It goes back to what I was saying earlier about expanding repertoires and the importance for a business like Foster’s to have a portfolio of brands.
The craft beer segment is small – it accounts for only about 1% of total beer volume in Australia. But that’s the very nature of craft - it means it is niche and is never designed to be big.
Craft beer is growing and that’s great news for the Australian beer business because it is stimulating excitement and renewed interest in the beer category as a whole. It is broadening beer’s appeal and bringing new beer consumers into the market. Matilda Bay was Australia’s first craft brewer and its success illustrates the interest developing in the craft beer category and we intend to capitalise on that.
Matilda Bay plays an important role in the Foster’s portfolio. Its share of craft market volume has grown from 21% to 27% in three years – it’s volume has doubled in that time and its revenue has tripled. It’s now the second biggest craft brewer in the country behind James Squire.
Q: Rumours are that the barbarians are at the gate. The history of brewing
is a history of consolidations and takeovers. What would a private equity
grab of Foster's mean to Australia's drinkers? Any chance of less profitable
brands being dumped as costs are cut for the inevitable relisting do you
think?
Amalgamation and merger has been a feature of the Australian beer scene for well over a century and we have been the major - and arguably the original - consolidator through the establishment of Carlton & United Breweries in 1907. While that has meant a few beer brands have fallen by the wayside, constant innovation has driven the diversity of tastes and styles available to Australian drinkers today.
My view on private equity is pretty simple. They’ll approach any company that has a share register they can pitch a proposal to and a company with ‘unrealised’ value that they believe they can exploit under private ownership. The best thing we can do as a company is run the best business we can on behalf of our shareholders. After all, the final decision on any private equity approach is up to them.
Would they drop major brands? - I doubt it. There is a lot of value and goodwill tied up in a number of brands across our beer portfolio. They would probably do exactly as we do, keep the portfolio constantly under review, innovate to grow value in new categories and drop brands if they no longer contribute sufficiently to group earnings.
Q What beer do you have in your fridge at the moment? Do you ever drink beer that isn't brewed by Foster's?
A: Like the average bloke, I have a range of drinks in my fridge. Currently there’s some Pure Blonde a great tasting low carb beer and another one of our big success stories. Of course, there’s some Foster’s and VB. There’s also a bottle of T’Gallant Pinot Grigio and a Koonunga Hill and one of the best Ginger Beers in the world from Cascade.
Q: Finally, our Boonie Doll brought us much joy earlier this year, but he eventually ran out of puff (unlike his namesake in that 1989 flight to England). Is it possible to change the batteries?
A: Sounds like you’ve held on to last year’s Talking Boonie but sadly, once he went to sleep it was permanent. However, you’ll be pleased to know that not only is Talking Boonie back, but he has a mate – Talking Beefy – and the banter has kicked off already, coinciding with the First Test and what we’re dubbing as ‘The Battle of the Tashes’. This time, you can make them talk on command and even change the batteries so, if you want them to, they will talk forever. To get your hands on a pair you better buy yourself a couple of slabs of VB or go to the website boonanza.com.au – but you’d better be quick. They’re selling like hot cakes.
AustralianBeers.com thanks Mr O'Hoy for taking the time to answer our important questions about Australia's most successful beer brands.
Trevor having a laugh at Boonie's antics