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Foster's split now seems inevitable

THE clamour for a corporate split at Foster's Group will become louder and the ascent of the group's new beer head John Pollaers to the top job rapid following news that the alcohol giant's beer market suffered a national share loss of more than 5 percentage points in the past two years, according to highly confidential market share figures.

BusinessDay can reveal that the beer industry's coveted Alpha Beta figures, adjusted to include the independent brewers, show that Foster's market share has fallen to 48 per cent, from just under 55 per cent two years ago, when Ian Johnston took the helm.

Whatever spin Foster's uses about the figures, the bold facts are this: Foster's is losing market share at an alarming pace.

To put it into perspective, every time Foster's loses a percentage point in market share it is giving up 2 million case equivalents in packaged beer, or 18 million litres of beer. Foster's took a decade to build this market share. Whether the loss is 3 percentage points, 5 percentage points or 7, the trend is down in an overall market that has grown 1.5 per cent over the same period. This is a spectacular underperformance in anyone's language.

The problem for Foster's for the past few years has been its global wine business. It paid too much for the Southcorp wine business, then was hit with a global wine glut and falling demand for premium wine after the global financial crisis. Other troubles were blamed by the board and equity market on a so-called multi-beverage strategy that was poorly executed.

But two years on, the multi-beverage strategy has been unwound, wine is still struggling and its cash cow, the $1 billion beer business, is in decline.

The issue was always, and still is, the fact that the independent retailer, which represents more than 50 per cent of the market, can't buy Foster's VB at the price that the supermarkets such as Dan Murphy's sell it at.

Inside Foster's, morale is low. After years of so many management changes and strategy upheavals it is little surprise. In the beer business alone there have been five CEOs in five years.

The best thing the company can do is elevate Pollaers, who has strong industry experience, and demerge into two separately listed beer and wine companies. That would stop any squabbles about assets being sold too cheaply, with the market in effect setting the price and adding in the respective takeover premiums. Until then, Foster's will continue to disappoint.

Based on the following sources:
http://www.theage.com.au