Beer discounts wobble Distell’s volumes
The producer of wines, spirits and ciders says liquor discounts to gain market share are not sustainable
The CEO of Africa’s largest producer of wines, spirits and ciders says dropping liquor prices to gain market share is not a sustainable strategy.
Distell rivals have been offering discounts and reducing prices as competition in the booming liquor industry intensifies.
JSE-listed Distell reported a 6.6% fall in volumes in the six months ended December 31, with profits falling 1.2% to R1.26bn.
The maker of Amarula, Hunters’ Dry and Savanna on Thursday said sales volumes in SA fell 7.8% due mainly to the country’s weak economy and declining disposable income for consumers. It said deep discounting by beer competitors had also hit sales.
“The domestic market was characterised by deep discounting by beer competitors and increased competition in the ready-to-drink and wine segments. These factors combined with shrinking disposable incomes among consumers resulted in a 1.7% revenue growth with sales volumes down by 7.8%,” the company said.
But Distell CEO Richard Rushton said dropping prices and offering discounts to grab market share was not a sustainable strategy. “We will endeavour to differentiate and innovate in ready-to-drink products. That is our strength. We have a strong pipeline of initiatives in that respect,” Rushton said.
“With respect to wine, we will play to our strength across the price points. We will obviously protect our volume and value share. We will use the full power of our portfolio in certain geographies to respond to the discounting. But as a company, we prefer to focus on marketing support for our brands”.
The company’s group revenue in the half-year to December increased 2.7% to R14.8bn as volumes fell 6.6% mainly as a result of poor performance in SA, Namibia and Zimbabwean performance. Headline earnings and headline earnings per share decreased 4.7% to R1.2bn and 4.8% to 548.6c, respectively.
Revenue in the rest of Africa increased by 10.5%. Distell also has presence in Nigeria, Kenya, Zambia, Botswana, Lesotho and Swaziland.
It said Mozambique, Nigeria, Kenya and Zambia recorded double-digit growth in volumes.
Volumes in international markets outside Africa were down 6.5%. Distell has a strategy to focus wine exports on high-margin products.
“The strategy is starting to pay dividends as revenue per litre in premium wine improved 6% despite challenging industry dynamics and consumer sentiment,” the company said.
In the 2019 financial year 26.1% of Distell’s revenue was generated outside SA. In the six months to end-December, the rest of Africa contributed 64.7% to foreign revenue and accounted for 16.8% of group revenue.
The company kept dividend unchanged at 174,0c per share.
Commenting on the budget delivered on Wednesday Rushton said: “We should commend (finance minister Tito Mboweni) for a budget that was aimed at tax restraint. We are pleased that he took heed of concerns about further inflationary increases in our categories. It is a very challenging consumer environment.”
In his speech, Mboweni said that with effect from Wednesday a 340ml can of beer or cider would cost 8c more, and a 750ml bottle of wine 14c more. A 750ml bottle of spirits, including whisky, gin and vodka would cost R2.89 more.
Distell's share price gained a marginal 0,05% to R105.80 on Thursday. The stock is down 20.33% since the beginning of 2020.
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