The news that Asahi was buying the brewing division of Fuller, Smith & Turner caught many by surprise and there were many that were crying into their beer at the sale of one of the pillars of the British brewing industry. To both parties, however, the sale looks like it is a shrewd bit of business that makes financial sense.
The families, who by right had the most to feel sentimental about the sale, still accounted for 50% of the shares and 75% of the votes and yet still pressed the button. This was a decision that was made with the head and not the heart.
The number that illuminates the reasoning behind the agreement is that 87% of operating profit is now accounted for by the company’s 400 or so hotels and pubs. That is the direction that the board wanted to go, and the deal will provide the ammunition to build up and invest in their on-trade estate.
One of the turning points for the larger of the UK’s family brewers was Chancellor Gordon Brown’s introduction of a Progressive Beer Duty in June 2002. This presented a generous tax cut for producers of under 60,000hl (increased in 2004) of beer. The move triggered a surge in the formation of small brewers and 15 years later the company was not only having to compete with the ‘majors’, but also with more than 2,000 micro and craft brewers who had a duty advantage.
Fuller’s was not the first London brewer to have come to the conclusion that they were better off concentrating on their retail estates. There was a similar outcry when Fuller’s old sparring partner, Young’s, closed and then developed its Wandsworth Ram Brewery site in 2006. Like Fuller’s plans to do, Young’s used the money to fund its pub expansion and let the brewing take a back seat by partnering with Charles Wells to form Wells & Young’s Brewing Company. Its interest in brewing eventually ended when it sold its stake in Wells & Young’s in August 2011. Looking at the five-year share performance, it turned out well for Young’s.
Around the country family brewers have come to the same decision. ‘Super regional’ Marston’s snapped up both Thwaites and more recently Charles Well’s brewing arms, allowing both brewers to channel their energies into serving beer and only brewing for their own pubs.
The sums do not just add up for Fuller’s though and it represents a good strategic move for Asahi who will not only have a brewery site in London with real heritage to brag about, but the company will also be taking on a stable of brands that fit well with its existing brands in the UK. All that when the pound is depressed, making the purchase even better value.
Asahi’s existing range in the UK, stemmed mainly from its 2016 acquisition of the Peroni, Grolsch and Pilsner Urquell lagers and will be nicely complimented with Fuller’s portfolio of often iconic ale brands. The popular Frontier craft-style lager brand should also slot comfortably into the range. Frontier was launched as recently as 2013 and proved so successful that it soon established itself as the Fuller’s number two selling beer. The acquisition will also be given more depth with the inclusion of Cornish Orchards cider and a wholesaling wine business.
Furthermore, Asahi will benefit from Fuller’s growing export trade which in 2017 made up as much as 13% of overall sales and includes trade with 80 countries. What is notable is that 22% went to Asia-Pacific, so there is already an appetite for Fuller’s products in Asahi’s heartlands. Anything with London in its name should be marketable anywhere in the world and flagship brand London Pride already has a strong following in the US where 17% of Fuller’s 2017 exports were destined.
In the UK the ‘strategic alliance’ will give Asahi the opportunity to be a ‘key supplier’, enabling it to sell its beers into Fuller’s hotels and pubs for at least five years. Fuller’s also has plenty of distribution muscle out of its own estate and Asahi will gain widespread coverage in the lucrative London and southern regions of the UK.
The move then will significantly enhance Asahi’s UK drinks portfolio, increase its reach in the UK and give it a range of very marketable beers to sell globally. For Fuller’s, the sale will give it the resources to invest in building up its hotel and pub estate and release the company from an increasingly difficult brewing environment.
The issue of heritage had to be handled sensitively and the response to the deal has often been emotional, but those concerns should be diluted by Asahi’s commitment to continue to brew and uphold the proud brewing traditions of preserving the heritage of the Griffin Brewery in Chiswick one of London’s most well-known landmarks.
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