Food and beverage manufacturer Lion has announced it will separate its dairy and juice businesses and devote more resources to growing its dairy business, after a decrease of 0.6 per cent in total revenues to $2,674 million for the half year ended 31 March 2014.  The group also intends to concentrate its strategic marketing on the “health and wellness” credentials of its products.

Lion said it continued to face “highly competitive market conditions” across its Dairy & Drinks and Beer, Spirits & Wine New Zealand businesses. While the Beer, Spirits & Wine Australia business experienced volume declines as a result of the declining beer market and the timing of the key Easter trading period, Lion said improvements in mix secured moderate revenue growth.

As a result Lion group operating earnings increased 1.9 percent to $420 million, supported by a favourable New Zealand exchange rate.

“Like all FMCG businesses Lion is navigating a highly competitive market against a backdrop of subdued consumer confidence and rising input costs,” said Stuart Irvine, Lion CEO. “In this environment we are firmly focused on high value category and brand growth, while reviewing operational efficiency across the business,” he said.

Mr Irvine said Lion had a clear ten year strategy in place to fuel future growth.

“As the leading brewer in both Australia and New Zealand we are committed to reinvigorating our beer markets and driving high value category growth through best-practice marketing and innovation investment,” Mr Irvine said.

Lion’s portfolio includes brands such as Tooheys, Dairy Farmers, Steinlager, Tasmanian Heritage, XXXX, PURA, Hahn, Berri, Speight’s, King Island Dairy, James Boag & Son, Dare, Yoplait, Wither Hills, St Hallett and COON.

Dairy and Drinks

In Lion’s Dairy and Drinks business subdued consumer confidence and a deflationary retail environment saw volumes decline 3.2 percent. Lion said that while the business continued to face “significant headwinds”, it has a clear three-year turnaround strategy in place to unlock value through focus and operational simplicity.Mr Irvine said the Dairy and Drinks business had made a “fast start” in implementing the three-year turnaround plan.

To lift brand and category performance Lion is preparing to leverage and optimise the “health and wellness” credentials of its portfolio and has focused resources on winning in priority categories, segments, brands, SKUs, customers and channels. To date 20 percent of the portfolio has been deleted, which Lion said had allowed renewed focus on high performers such as milk based beverages, which continued to grow volume and value share during the half.

Mr Irvine said the business was also firmly focused on optimising the performance of its supply chain and manufacturing footprint, and since the conclusion of the half had implemented a refresh of its organisational structure to align resources to its strategy and respond to feedback from customers, farmers and other stakeholders.

“We are also devoting more focus and resource to growing our high-value branded dairy brands in key Asian markets through the establishment of a fourth business unit, alongside our domestic dairy and alcohol business units,” Mr Irvine said.

“While the international business unit is nascent and will take time to grow, we believe the increasing demand for trusted dairy products in Asia, coupled with our strengths in building high-equity, nutritionally powerful brands, puts us in good stead to unlock these opportunities and build our presence across Asia for long-term growth,” Mr Irvine said.

Separation of juice and dairy businesses

Key to the new structure is the separation of the juice and dairy businesses, with the appointment of a juice General Manager.

In addition, Lion said its Sales function had been re-organised into two teams focused on the specific needs of Grocery and Convenience & Food Service customers, and performance in product quality, manufacturing and logistics would be improved with dedicated Leadership Team appointments.

Lion reported that since the conclusion of the half a new milk pricing strategy has been implemented, offering Lion farmers a mix of compelling pricing, tenure and other benefits, tailored to each market.

In Far North Queensland Lion announced a record milk price increase, together with further increases in South East Queensland and New South Wales, positioning Lion as a leader across these regions and signaling its confidence in the Northern dairy industry and its own growth strategy. In the Southern states Lion has introduced a new pricing model for direct suppliers that will allow farmers to choose from three competitive options delivering enhanced transparency, visibility and security over the three year contract terms.

Beer, Spirits & Wine

Volumes across Lion’s total Beer, Spirits & Wine business in both Australia and New Zealand declined 2.5 percent, largely driven by the timing of the Easter trading period in April 2014, which fell in H1 (March 2013) the previous year.

Australia

Lion said said that while total market conditions remained challenging, its portfolio was geared to the growth segments of the market, including mid-strength, contemporary, craft and international premium.

Australia’s largest beer, XXXX GOLD, continued its long-term growth trajectory, growing 2.8 percent off a large base, while contemporary brands Hahn Super Dry and mid-strength variant Hahn Super Dry 3.5 outperformed the segment. Lion’s market-leading portfolio in craft continued to flourish, with James Squire 150 Lashes Pale Ale and The Chancer Golden Ale posting double-digit growth2.

Alongside its continued focus on brand and innovation investment, Lion said it was investing in the capability of its site network to drive growth across its portfolio.

During the half Lion opened its new Little Creatures craft brewery and hospitality venue in Geelong Victoria and announced the construction of a 2,000 tonne boutique Petaluma winery, consolidating winemaking, bottling and packaging at a new Woodside site in the Adelaide Hills by late 2014. Lion has also earmarked a $3 million expansion of the tourism and hospitality experience around the historic James Boag’s Brewery in Launceston and is close to completing its investment in its cider capabilities at the West End Brewery in South Australia.

New Zealand

New Zealand market conditions remained challenging and Lion said it continued to experience aggressive competition during the half.

Despite these conditions Lion’s Speight’s craft portfolio maintained positive growth, supported by strong double digit growth in Crafty Beggars and Lion’s highly successful ‘Made to Match’ marketing campaign, which Lion said aimed to “reinvigorate” the beer category through improved consumer education of beer and food matching. In wine top performing brands Wither Hills, The Ned, Huntaway and Mount Difficulty all posted strong growth3.

During the 2013 half year period Lion announced a new distribution agreement with Campari for the New Zealand market, including the Wild Turkey Bourbon and American Honey brands. One year on Lion has grown Wild Turkey from the number 8 bourbon brand in the country to number 4, through improved distribution and marketing investment, while the Dewar’s brand also enjoyed double digit volume growth during the 2014 half.