InBev deal may put the fizz back into Magners but will it work long-term?

THE decision by Bulmers owner C&C to extend and expand an existing relationship with AB InBev in Ireland and the UK seems like a sensible one, although is hardly a solution to its problems with Magners cider. The relationship with the multinational started back in 2009 and now C&C has decided to take it a step further with expanded distribution and contract brewing agreements.

After failing to crack both the UK and US cider markets, C&C’s strength is in the Irish and Scottish markets which account for over 80pc of its profits – the Bulmers cider and Tennent’s beer brands are strong performers respectively.

On the other hand, AB InBev UK is a big player in the English and Welsh markets and the deal is playing to the strengths (and weaknesses) of both players.

One of the C&C’s main difficulties in the UK to date has been route to market and the deal should go some way to tackling this issue.

Despite Magners first big splash in London in 2005, the English and Welsh markets account for less than 10pc of earnings before interest and tax (EBIT) and C&C has been struggling for quite a while to make a mark in the UK with its Magners brand.

An attempt by C&C to gain a foothold in the UK via the pub door route ended unsuccessfully at the start of 2015 but not before C&C had stunned the markets.

Many analysts were left scratching their heads when it emerged that C&C had lobbed in a bid in for the Spirit Pub Company, trumping an offer from Greene King.

Greene King then sweetened its offer and C&C pulled out of the deal.

Despite the pub experience of C&C chief executive Stephen Glancey from his time at Scottish & Newcastle, many analysts considered the Spirit move a departure from C&C strategy. In fact, some institutional investors openly balked at the plan.

This latest deal is nowhere near as bold, but looks more strategic.

Under the terms of the new deal, AB InBev will be responsible for the sale and trade marketing of C&C’s cider portfolio which includes Magners, Chaplin & Corks and Blackthorn, in England, Wales, the Channel Islands and the Isle of Man, including on and off-trade national accounts.

In addition, existing distribution arrangements with AB InBev, through which C&C distributes AB InBev’s beer portfolio will continue.

When C&C reported first-half results in October, Glancey said that the fizz was back in Magners sales, with volumes rising 11pc and its market share up by 1.4pc, although revenues and operating profit were down.

No doubt C&C believes the AB InBev deal will help it build on improving sales.

In the same period, Bulmers volumes in Ireland were 6pc higher in the period, while Tennent’s volumes rose 2pc in the Scottish independent free trade channel. Volume exports of Tennent’s rose 50pc. C&C faces ongoing challenges in markets like Ireland and Britain due to increased and intense competition.

This has led the company to seek out markets further afield with its international division playing a key role in developing growth opportunities in emerging markets.

Earlier this year C&C signed a distribution deal in China with Vandergeeten, which has worked in the past as a distributor for western firms like InBev.

While a strategic move, this latest deal with AB InBev is unlikely to set the cider world on fire or C&C’s bottom line for that matter.

The UK cider market is already a mature one although C&C should be able to use the deal to grow its market share further with a strengthening of its route to market.

It may buy C&C some time, but the company has yet to prove that the early success of C&C wasn’t anything more than a flash in the pan. As a very small player in a market dominated by drinks giant Heineken, does this deal really give Magners a long-term future in England and Wales?