Food and beverage company Lion has reported a sale revenue decrease of 3.1 per cent to $4,990 million for the financial year ending 30 September 2014.

Lion, which is a subsidiary of Japan-based food and beverage company Kirin Holdings, said a year of “subdued consumer sentiment fuelled highly competitive and deflationary market conditions” across Lion’s businesses.

The Company reported that total Beer, Spirits and Wine volumes across both Australia and New Zealand declined 2.7 per cent, while volumes in Lion Dairy & Drinks (LDD) declined 7.3 per cent. However, Lion said that with a focused strategy of building high value brands and categories it was was able to soften the volume impact.

While Lion said it implemented a range of efficiency measures throughout the year, the rising global milk price intensified margin pressure in the final quarter and operating earningbefore interest and tax decreased 4.3 per cent to $668 million.

“Australian and New Zealand consumers are drinking less alcohol overall than any time in the previous 15 years, however this is positively coupled with a trend towards premiumisation, as consumers opt for quality over quantity and trade up to higher equity brands,” said Stuart Irvine, Lion CEO. “This is benefiting our long-term strategy of marketing and innovation investment in premium growth categories, and our market-leading brands in international premium, contemporary, craft and mid-strength continued to flourish,” he said.

Dairy and Drinks business

Lion said its Dairy & Drinks business continued to face challenging market conditions, which were exacerbated by historically high global milk prices that impacted returns across the dairy sector.

“While conditions remain challenging we have made a fast start implementing our three year turnaround strategy,” Mr Irvine said.

“Core to this strategy is a focus on our most profitable growth segments, brands, customers and channels, a health and wellness portfolio positioning and strategic milk procurement – supported by a new organisational structure established in FY14,” Mr Irvine said.

Mr Irvine said Lion’s portfolio of “natural dairy and juice products” was “highly aligned to Australians’ increasing desire for better quality and less processed food”, and their preparedness to pay more for “quality, provenance and nutritional benefits”. He said a renewed focus on nutrition and ‘better for you’ foods would be a “core driver of growth in future years”.

“Of course key to any dairy business’s success is strong and mutually rewarding farmer partnerships, and in FY14 we introduced a new milk pricing model to improve and deepen these relationships – offering a compelling mix of pricing, tenure and other benefits, tailored to each market,” Mr Irvine said. “The new model was well received, and as a result we have been able to secure supply in an increasingly competitive environment,” he said.

Australian Food News reported in October 2014 that Lion had also begun to highlight its partnerships with dairy farmers on its milk packaging in Far North Queensland. Lion said the switch to ‘Malanda Original Milk’ packaging in Far North Queensland, which began in July 2014, had seen a retail sales increase of 2 per cent by October 2014.

Yoghurt, cheese and milk beverages grow

Lion said its Dairy and Drinks business led the market across high value and growing segments such as milk-based-beverages, yoghurt and specialty cheese, which the Company said were benefiting from renewed focus and investment.

Lion’s milk-based-beverages grew value 7.4 per cent, with a particularly strong performance from market leader Dare, which posted double digit volume and value growth across grocery and the convenience channel.

Lion Asia Dairy established

During the 2014 financial year Lion established a fourth business unit, Lion Asia Dairy, signaling an intention to ramp up its international presence and pursue a focused strategy of building brands and high value categories in growing Asian markets, as well as domestically.

“While the international business unit will take time to grow, we are making solid inroads,” Mr Irvine said.

“We are already the number one yoghurt manufacturer in Singapore and following the conclusion of the financial year launched one of Australia’s most trusted dairy brands, Dairy Farmers, in China’s largest retailer China Resources Vanguard, with plans for significant expansion across southern and eastern China,” Mr Irvine said.

Beer, Spirits and Wine business

In Australia, Lion reported that its beer brand James Squire over-indexed growth in the craft segment – the fastest growing segment of the beer market – boosting volumes over 23 per cent across the year.

Contemporary brand Hahn Super Dry and mid-strength variant Hahn Super Dry 3.5 also flourished, growing at 3.8 per cent and 6.3 per cent respectively2.  Lion’s portfolio of international premium brands continued to benefit from Lion’s leading in-market execution, with the portfolio growing 8.6 per cent during the year2.

In New Zealand Lion’s wine portfolio was a standout, boosted by innovation and brand investment. Wither Hills achieved strong growth domestically and through export markets, while Huntaway became the fastest growing premium wine brand in grocery in the country. Pleasingly Lion’s two biggest beer brands were also in growth, with Speight’s growing by 3 per cent and Steinlager Classic by 4 per cent.