BEVERAGES: Distell Showing Some Bottle
Recent Western Cape Business News
There has long been a theory - perhaps, at best, based on woozy logic - that alcohol and tobacco brands are recession proof items.
If Distell’s interim performance to end December 2008 is anything to go by then that theory may well hold water.
Somehow – amidst a global financial crisis and major economies sliding into recession – Stellenbosch-based Distell has pumped up its earnings a robust 18% to R651 million.
Most casual observers know that Distell is a tightly managed company under the steely gaze of Jan Scannell – but if you think Distell pushed up bottom line only because of a strict cost containment regime you would be wrong.
The group’s top line shows that sales volumes increased 16% to 259 million litres, resulting in a 16% hike in turnover to R6 billion.
Both bottom line and top line growth are impressive – remembering that a number of more illustrious international competitors have been trading in the red of late.
Officially – or at least according to the press release – Distell’s performance came courtesy “the agility provided by a basket of exceptional brands with strong consumer franchise offering real value for money across the pricing continuum, representation in a range of markets worldwide and an even better performance from operating units throughout the business...”
But closer examination of Distell’s interim results suggests that – quite simply – the group has got its hooks into the local market.
Statistics show that Distell’s domestic sales volumes jumped 10.7% with revenue jumping nearly 15%.
This advance, according to Scannell, was mainly due to the growing popularity of the company’s cider and ready-to-drink (RTD) brands – which, he says, continued to build market share.
Scannell says local spirits sales (which includes Distell’s well known brandy ranges) remain under pressure, but the company still managed to increase its market share in this competitive category.
The best news, however, is that Distell managed to achieve profitable wine volume growth – a segment that has proved tough over the last few years as fragmentation of the local wine industry has seen a surfeit of brands competing for shelf space.
Scannell notes that although sales were expanded Distell opted to protect brand equity in a highly price-sensitive market rather than chasing volumes.
Distell is also fortunate in its extensive offshore endeavours.
Scannell says the group’s capacity to respond flexibly to changed trading conditions abroad meant international sales were lifted a massive 37% with revenue – obviously helped by the markedly weaker rand – soaring by over 50%.
Distell indicated that the increase in wine sales volumes had outpaced the 23% rise in bottled wine exports for the wine industry as a whole for the comparable period.
This speaks volumes for the strength of the group’s brands in international markets.
Scannell says Distell cracked good volume growth in Europe and Africa with the Asia Pacific “now also assuming greater significance.”
The star of the export show, however, were markets in Africa, which accounted for a chunky 54% of Distell’s foreign revenues.
Despite the strong interim performance, Distell still indicated that the benefits derived from improved throughput and efficiencies had been largely offset by steep increases in material costs and distribution expenses.
Additional investment required to expand sales and marketing representation in important markets will probably also be more of a factor in the second half trading.
Perhaps Distell’s second half won’t be quite as spirited as the first half, but if it can push home any advantages in established and new markets there will no doubt be benefits further down the line.
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