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Tax takes fizz out of alcopops

11 Feb 2013 THE AGE - ELI GREENBLAT


THE ready-to-drink category in Australia, also known by the more colloquial name "alcopops", continues to remain a growth-free zone thanks to the massive 70 per cent tax increase imposed on the sector by the Rudd government four years ago, as well as changing tastes such as the massive shift by drinkers to alcoholic cider.

Diageo Australia, local offshoot of the global spirits and beer giant that owns beverage brands such as Johnnie Walker, Smirnoff, Baileys, Tanqueray, Hennessy and Guinness, has reported that RTD sales sank 1 per cent in the first half of 2012-13 with the drinks category having flat-lined for years.

Diageo is the market leader in the RTD segment with local managing director Tim Salt saying the company would need to further innovate to create more interest in the category, offering drinkers new ranges of drinks from its popular Bundaberg Rum label while also directing more marketing dollars towards other beverages such as gin and rum. "We are doing some new RTDs and we are really trying to change the way people perceive RTDs," Mr Salt said.

This included a new Bundaberg Rum and soft drink pre-mixed drink currently being tested in the Queensland market, which uses brewed soft drink from a regional supplier. "It's a test, but I think what it does is tap into authenticity . . . and is an exciting innovation."

Mr Salt said Diageo would not resort to price discounting to attract drinkers back to the RTD market despite many flocking to ciders, which are taxed at a vastly lower level by the federal government.

"The challenge for us is to make sure we have offerings that the consumer wants to buy; short-term price discounting might give you a short-term kicker but that's not the game we are going to play.

"We have to work out how do we get consumers back into our RTDs and get that category growing through authentic products, great-tasting products and products that, at whatever price they are at, consumers recognise the value in those products." Part of this innovation saw Diageo launch a few years ago a range of pre-mixed spirits packaged in casks, combining quality ingredients such as cloudy apple or blood orange with its branded vodka, Smirnoff. That category has also suffered of late, hit by intense price competition from "me-too" brands trying to grab market share at any price.

However, there was some good news for Diageo in the first half, as its overall group sales in Australia rose 2 per cent as a renewed push in spirits and particularly premium labels helped drive a 3 per cent sales improvement for the half in spirits.

"The area we have seen a whole lot of growth in the first half was in what we call the 'super premium' area and that's grown for us around 48 per cent in the first half"

He said this portfolio included products such as Johnnie Walker Gold and other spirits that sold for more than $50 a bottle.

In an effort to bolster its premium and super premium earnings, Diageo has also decided to invest further this year in its gin brand Tanqueray as well its premium rum range under the Bundaberg branding.