http://www.brisbanetimes.com.au/busi...210-2z2y7.html

By Eli Greenblat

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Lion CEO Stuart Irvine must be one of the business world’s biggest optimists.
He has just spent $60 million of his Japanese owners’ money on a new brewery at a time when the beer market is in its third year of stagnant or negative growth and consumer confidence remains in the doldrums.
Throw into the deal that Lion’s new Little Creatures brewery is in the Victorian regional centre of Geelong, fast becoming a rust-belt thanks to the closure of the Ford car plant in 2016, and that Coca-Cola Amatil is set to re-enter the craft beer market after a two-year absence with a mission to steal market share.
So you could ask why Mr Irvine is smiling so much.
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But the chief of the nation’s biggest brewer believes craft beer has veered into a premium growth groove that will underwrite the company’s capital expenditure plans.
‘‘We believe in craft beer,’’ Mr Irvine said yesterday as he unveiled the new Little Creatures brewery, which has capacity to pour out 10 million litres a year (or 80 kegs an hour) of the country’s third most popular craft beer Little Creatures Pale Ale.
“We are seeing more and more people taking craft beer up, people in Australia are increasingly liking the flavour of craft beer.’’
East coast shift
The $60 million investment also made perfect business sense as craft beer sales were booming along the east coast at a time when Little Creatures had also outgrown its original brew house in Fremantle.
“We are seeing a lot of the centre of gravity of craft beer over on the east coast, so we were looking for ways to give ourselves the capacity to build [there] and this was an ideal opportunity to do that,’’ Mr Irvine said.
The brewery would supply east coast markets, cutting down on transport and energy costs borne by hauling beer from Fremantle across the Nullarbor to Melbourne and Sydney.
Although beer as a category was losing customers to wine, spirits and cider, craft beer was growing 13 per cent per year, albeit from a small base as it only made up 3.2 per cent of the total beer sector.
“It makes commercial sense as well, because craft beer is typically high value per litre. It makes sense for everyone. The consumer likes it, we like and that’s why it makes sense to invest in a place like this,’’ Mr Irvine said.
Lion, owned by Japanese beverage giant Kirin, has 50 per cent of the craft beer market. Its top position is driven by its James Squire brand, the leading craft beer in Australia with one-third market share, and its Little Creatures beers, which has 13 per cent of the market.
Lion bought out Little Creatures’ parent, Little World Beverages, for $256 million last year, using a long-held minority stake in the group for a full takeover.
CCA re-entry
Mr Irvine said he was not worried about CCA’s re-entry into the craft and premium beer market after a two year absence, or being dragged into a price and promotion war as the soft-drink bottler attempts to trumpet its beer credentials.
‘‘We reckon if we concentrate on what we do well, we’ll continue to grow,’’ he said.
Lion has a number of popular beer brands it is licensed to manufacture and distribute in Australia including some of the best selling beers in the country such as Corona, Heineken and Becks - all of which CCA would be keen to snatch away to give greater bulk to its own burgeoning beer business, which has a number of smaller US beer brands.
Mr Irvine wouldn’t comment on his contracts that tie the international brewers to Lion but said Lion had a great relationship with the foreign brands.
‘‘If we have a mutually satisfactory relationship why would they want to go anywhere else?,” he said.
Lion, which is also the single biggest supplier to supermarket giants Woolworths and Coles, was not interested in extending a recent food and grocery suppliers code of conduct to cover its brewing arm.
The code covers Lion’s dairy division, but Mr Irvine said a code covering beer was unnecessary.
‘‘Right now, the relationship we have with our customers are really constructive and I don’t see any need for doing that,’’ he said.

Read more: http://www.smh.com.au/business/craft...210-2z2y7.html