Divisional Review
Cider - Republic of Ireland (ROI)


Constant currency(i) FY 2010/11
€m
FY 2009/10
€m
Change
%
       
Revenue 136.4 153.0 (10.8%)
Net revenue 100.0 107.6 (7.1%)
- Price /mix impact     (4.4%)
- Volume impact     (2.7%)
Operating profit 43.7 44.2 (1.1%)
Operating margin (Net revenue) 43.7% 41.1% 2.6ppts
Volume – Bulmers (khl) 517.8 530.4 (2.4%)
Volume – Other (khl) 30.8 33.6 (8.3%)

Bulmers

Long Alcoholic Drinks (LAD) volumes in ROI remain level year on year. However, a change in consumer behaviour is clear from the 9% growth in LAD off trade volumes and the 5% decline in on trade volumes that, according to Nielsen, constitute the flat LAD market. Consumption at home has evidently increased during the past 12 months. Price is a factor in this accelerated channel switch. The level of promotional activity has increased and the average retail selling price for LADs in the off trade dropped by 10% in the year to February 2011. In comparison, the average retail selling price for the Bulmers brand fell by 6%, increasing the price premium of the brand to the LAD category from 26% to 30% in the off trade. The relative increase in the price premium of the Bulmers brand contributed to a loss of share in the off trade with Bulmers volumes dropping by 1%. In the on trade, the Bulmers pint bottle continued to perform well and kept the brand volumes in line with the overall LAD decline of 5%.

The revenue decline of 10.8% is distorted by the duty reduction in December 2009. Net revenue excludes duty and provides greater clarity on the impact of underlying pressures on revenues in ROI. Net revenues were down by 7.1% in the year with volumes accounting for 2.7% and price mix a further 4.4%. At this point in time, the on to off trade channel dynamic is not a significant factor in the revenue decline for C&C. Bulmers price reductions in the on trade for packaged in June 2009 and draught in May 2010, together with increased price support in the off trade, are the main reasons for the 4.4% price /mix impact on net revenue. However, as the off trade builds scale and the levels of promotional activity increase it is likely that the on to off trade channel dynamic will become more of a deflationary feature.

Despite the revenue loss, an improvement of 2.6 percentage points in operating margins delivered cider earnings broadly in line with the prior year. Earnings for ROI were level year on year inclusive of the contribution from beer. Cost reduction from both inputs and overheads on the supply side of the business provided some relief from the price deflation. Marketing investment in Bulmers was reduced to fund an obvious need for some price support in the off trade. The reduced levels of marketing spend have not been to the detriment of the brand health.

Whilst the robust margin performance of the Bulmers business in FY2010/11 is acknowledged, it is likely that price deflation will be a feature of the LAD market for the next few years in ROI. The scope for further cost reduction is limited. Consequently innovation in cider and diversification in beer will become increasingly important to an earnings protection strategy for the next few years.

(i) On a constant currency basis, constant currency calculation is set out on page 20

(back to top)




Bulmers

Bulmers

Bulmers