Tax, tonic wines challenge Red Stripe sales
Published:Wednesday | July 21, 2010 | 12:00 AM
Huntley Medley, Contributing Editor
Local brewer, Red Stripe, is seeking to recover from what company officials have described a "significant volume hit" in the last two years which they blame on the general economic climate, Government's tax policies and the resulting price competitiveness of rival alcoholic drinks, tonic wines.
Its market recovery plan, Red Stripe officials said, does not focus on
"We have made significant progress in terms of opening new markets in the recent past, breaking into markets such as Brazil and Suriname," said Alan Barnes, managing director of Red Stripe and commercial director for beer at Diageo's Northern Latin America and Caribbean division.
At the same time, Red Stripe has no plans to increase the number of arrangements it has worldwide for other brewers to make and sell its products under licence.
"This is not in our plans as we stand today, although if we see a major new opportunity for any of our brands, then we will certainly consider this," Barnes said.
The flagship Red Stripe beer is currently produced in only a few locations outside Jamaica, including Canada, where the canned beer is made exclusively, and in the United Kingdom, as well as Antigua in the Caribbean, where Wells and Young and Antigua Brewery, respectively, brew the beer under licence from Desnoes and Geddes Limited, Red Stripe's original name.
Barnes said the company was on the cusp of breaking into several other new markets, but he declined to name them.
Plans to boost profile
He acknowledged that Red Stripe's products had a low profile in many Caribbean markets where native beers such as Carib, Banks, Piton and Wadadli dominate the markets. Trinidad's Carib is a popular brew in most Caribbean countries, including Guyana and Suriname on the South American mainland. Banks is made and marketed by both Banks (Barbados) Breweries and Banks DIH in Guyana, while Piton is the product of St Lucia's Windward & Leeward Brewery.
Antigua Brewery produces Wadadli beer.
"Essentially, we have put in place a strategy to address this, however we are concentrating on the big-win markets currently, and on turning around our local Jamaica business," Barnes told Wednesday Business.
"This has to be our biggest priority, and not gaining one or two small markets where the imported beer segment cannot make a signi-ficant impact on our business model."
Barnes said the recent spate of layoffs announced by Red Stripe was a direct response to the fall-off in sales, which he has blamed on Government's tax policies and the price advantage they hand to competing beverages such as tonic wines.
For the nine-month period to March 31, the company paid out J$1.7 billion in special consumption taxes on sales of J$9.9 billion. In the same period in 2009, its GCT charges amounted to J$1.3 billion on sales of J$9.86 billion.
"We have sadly had to reduce our production and distribution workforce due to the reduced volumes caused by the economic climate and tax inequities, which unfairly creates an unlevelled playing field, favouring the competition and has caused the growth in tonic wines," said the Red Stripe boss.
Last month, Red Stripe made 60 positions redundant, and since last year, has frozen hiring for another 27 vacant slots that are also being taken off the organisational chart.
"We have reduced our production and distribution capacity as a last resort," Barnes said.
Illustrating the effect of taxation, he added that Red Stripe Light, for example, paid 1,000 per cent more tax than a tonic wine.
"We need a level playing field, where the consumer is free to choose between all the brands out there, without pushing them into one category or another simply due to price," Barnes added.
Some retail outlets have reported brisk sales in tonic wines, while others have seen a fall-off, indicative of a general drop in alcoholic beverage sales.
Magnum a bestseller
The Magnum brand of tonic wines, made by J Wray and Nephew Limited, but owned and distributed by Lascelles, appears to be the number-one seller in the category appealing to purchasers across socioeconomic groups. Lascelles also distributes Wincarnis tonic wine.
Uptown supermarket, Loshusan, at Barbican in St Andrew, has reported selling on average 480 bottles of Magnum per month and about 120 bottles of Guinness and Dragon stouts, the next best moving alcoholic beverages. Beers are moving more slowly, supermarket supervisor, Andre Brooks, said.
Nicolette Casey, system category manager for Hi-Lo Food Stores said Magnum tonic wine was the best seller in its category at that supermarket chain too. This was followed by Mandingo Roots wines distributed by VAP Limited, and the Red Label and Jagra brands from Wray and Nephew. Wray and Nephew also markets Stone's ginger wine and Sanatogen tonic wine.
Casey said sales volumes have declined for beers and stouts of which about 7,000 units are sold per month. But Hi-Lo has not seen any corresponding increase in tonic wines sales, which have also dipped some nine per cent so far this year over the same period last year, it reported.
Many drinks in the tonic wines category such as Magnum and Sanatogen are alcoholic beverages said to be fortified with iron and vitamins and have been around for several years. In recent years, however, the local market has seen a flurry of new tonic beverages labelled as 'roots' wines which are subtly and not so subtly being marketed to males as possessing aphrodisiac and energising qualities. Some list ingredients derived from reputed sexual performance- enhancement plants such as maca root, ginseng, sarsaparilla and horny-goat weed.
These roots tonic wines have included Mandingo, Jagra, Real Vibes and Old Pirate.
Other non-alcoholic fermented natural roots drinks abound with brand names such as Zion, Baba Roots, Yardy, Slingshot and Manayaad.
Category manager
"Our observations have been that consumers' drinking pattern has changed over the last three years and continue to change: there is a growing demand for mixed drinks and stronger alcohol by volume," she said.
Marketing manger at J Wray and Nephew, Andrew Price, said that company's brands remain competitive despite a tighter market.
"People have become very price- conscious in the current economic climate, and as a result all brands are purchased based on a value proposition," he said.