Smiddy steers Beamish to stout profits

BEAMISH & Crawford's managing director Alf Smiddy is under no illusions: the British market is the place to really grow the company. The Cork brewery's recent take over of Beamish as part of a £425 million deal by Scottish & Newcastle (SPUN), which bought out Foster's interests in Britain (the brewers Courage) and Ireland will help to establish a better presence there. S&N is now Britain's biggest brewery controlling 25 per cent of the market, followed by Bass.

The launch of Beamish Red Irish Ale is a big step, representing an investment of about £5 million over three years. The British market is worth around 38 million barrels a year (1 barrel=298 pints), with the premium ale sector comprising some 4 million annually. Beamish expects sales of its new product to reach £20 million in three years.

Industry sources say that Mr Smiddy, an accountant by profession, who joined the company as financial controller in 1988 and became managing director last December, has a tough job on his hands to maintain and expand the Beamish brands.

The beer industry is fiercely competitive and the export markets are vital. Although Beamish brews and distributes a string of brands including Carling Black Label, Foster's Lager, Foster's Ice Beer and Scrumpy Jack Cider in Ireland, it is best known for its stout.

The export stout market is far bigger than the Irish one. The stout market in Britain comprises about 5 per cent of the beer market, whereas in Ireland it comprises 50 per cent of the market. However, the British market is much bigger in volume terms.

Guinness dominates with about 75 per cent of the Irish market (a decline from 92 per cent some years ago); Murphy's has about 15 per cent, while Beamish has 10 per cent.

One source predicts Beamish will be able to push its market share to 15 per cent over the next three years, while Murphy's will increase its share to around 20 per cent.

"Gillespies, a stout which is brewed by Scottish Courage, part of Scottish & Newcastle, is almost a competitor of Beamish," says one source. "It could prove a stumbling block, and mean that Beamish is only sold in England."

Mr Smiddy rejects this assessment. He says Gillespies is a fine beer, but a regional beer. Beamish is being marketed in Scotland, he says, and is performing well.

However, it is in Ireland that the Beamish tactics come in for most criticism. It is sold at 20p cheaper than its rivals Guinness and Murphy's. Industry sources, even those without a direct interest, question the wisdom of such a tactic.

They say Beamish gets about £16 a keg less than its competitors. It is difficult to define margins, because all breweries have undergone major investment, but sources say there is very little margin in it for Beamish, while selling at a 20p discount.

"You will gain sales in the short term by reducing price," says one source, "but the beer market is not price driven, rather it is about branding and quality."

"If you reduce the price then you are seen as a value-for-money brand," says a competitor. "It is then very difficult to increase the price."

Pricing is an issue which Beamish keeps under review, says Mr Smiddy, who disagrees with the analysis. He says Beamish has always been marketed as "a great pint, great value for money" and that Beamish has passed the benefits i.e. lower pricing, directly onto the consumer. "You could equally ask Guinness why Harp is 20p dearer than Guinness stout," he says.

Market analysts are not too impressed with the performance of some of Beamish's draft lagers. "In Ireland, Carling [a lager] was a cash cow for Beamish, but its sales are declining," says one industry source.

Alf Smiddy acknowledges that Carling has lost market share. Beamish spends a lot of money supporting the brand, which he says has stood the test of time (it was introduced in the 1960s as a competitor to Harp). "The problem is that it is not seen as contemporary enough."

Drinks industry players are notoriously reticent about giving profit projections and market share. There are a few statistics, however, which Mr Smiddy has no problem sharing: Beamish has 8 per cent of the stout market in Ireland, Murphy's (also Cork-based) has 4.5 per cent and Guinness has the remainder.

One-third of all stout is consumed in Dublin, according to Mr Smiddy and here Beamish has 8 per cent of the market. Murphy's, he says, has just 1 per cent, while Guinness has 91 per cent. A few years ago, Guinness had 99 per cent of the market, he says.

What will help all the players is that the beer market is growing after years of remaining static. Last year it grew by 2 per cent overall, and this year, figures for the first quarter show growth rates of around 10-12 per cent, compared to the same period last year.

Mr Smiddy predicts consumers will see a lot more competition in the Irish market in the next 10 years, through the introduction of more brands and more players. "You will see more change in the market in the next decade than you did in the last century," he says.

He argues that it is incredible that one brewery (Guinness) dominated the market for so long. It is no wonder, he says, that the world's top four or five breweries are now competing in the Irish market.

The prospect of more competition is one that doesn't seem to daunt Alf Smiddy. Instead, he welcomes it, saying it will be better for producers and consumers. The introduction of Beamish Red is predicted to add £7 million to this year's sales figures and he is extremely confident that the project will be profitable from day one. Other add-ons, such as this week's introduction of Sub-Zero, an alcoholic soda, are planned for the future.

It is understood that last year, turnover was approximately £52 million, of which about £1 million was profit. Mr Smiddy refuses to divulge figures but says the company is trading profitably.

However, the journey so far has not been an easy one for Alf Smiddy, his management team and the employees at the Cork plant which was established in 1792 and is Ireland's oldest brewery.

Like other breweries, old work practices were endemic in the company, before a rationalisation package was implemented by Foster's, who bought the company in 1987 and invested some £10 million. One industry source recalls visiting the Beamish plant in 1987. "You could sense the company was overmanned, compared to its competitors and that mightn't survive without rationalisation," says the source.

Much of the credit for the company's survival and subsequent growth has gone to Alf Smiddy, who had to oversee the rationalisation plan. When he arrived in 1988, as financial controller, the company was losing £2 million to £3 million per annum. Losses of this order continued until 1994 when a major rationalisation plan was implemented. The workforce was cut from 340 to 180 and major changes were introduced including contracting out technical services and product distribution.

Despite the painful rationalisation, sources say Alf Smiddy has managed to maintain a good relationship with the remaining workers.

"He is very much a hands-on manager," says one colleague. "He often appears on the factory floor, knows everyone by their first name and is well-up on their families."

A competitor describes him as "affable, sometimes serious". Others who know him say he is one of the lads, "definitely not part of Cork's Merchant Princes' set".

He works hard and is usually at his desk by 8 a.m. He has a young family and spends a lot of time in the evenings and at weekends with them at their home in Glanmire, outside Cork city.

At 33, he has plenty of time to bring the company into the year 2000, as a solid, viable operation, with a strong international reputation. The company's acquisition by Scottish & Newcastle has given Beamish very important "muscle" to develop its products internationally and a new platform for these products.

However, Beamish, which currently spends £5 million per annum on marketing, will still find itself under sustained pressure from other breweries, many of whom have good access to other markets.