Shelling out £180m for Tennent's shows C&C Group means business - but not necessarily when it comes to lager. Nigel Huddleston reports


It may fall short of a match made in heaven, but C&C Group's acquisition of the Tennent's lager brand from Anheuser-Busch InBev could help return the flagging cider maker to happier times.

The £180m deal sees the Dublin and London-listed Magners owner take over Scotland's biggest lager brand and has been sweetened by the inclusion of non-exclusive distribution rights for a package of InBev brands including Stella Artois, Budweiser and Beck's (though caveats have been built in to keep big national accounts for these brands in the InBev fold).

Far more importantly, it gives C&C's flagship cider brand more muscle in the Scottish wholesale market and around the negotiating table with major buyers.

The roster of InBev brands, which doesn't include Tennent's Super, will provide C&C with a crucial portfolio of brands with which to approach the Scottish on-trade, putting it on a more even footing against the might of Heineken-owned Scottish & Newcastle, which can already piggyback its Strongbow and Bulmers Original cider brands on Foster's and Kronenbourg 1664.

John Dunsmore, who became chief executive last November after vacating the same post at S&N following the Heineken takeover, makes no bones of the fact that the main motivation is to shore up the cider business rather than get into lager. "If we don't succeed in cider then it's fair to say C&C as a group won't succeed," he says bluntly. "This move is designed to strengthen our cider business. We're not going into beer for the sake of going into beer."

Dunsmore's arrival at C&C has brought a significant shift in strategy. Aside from a portfolio of minor spirits brands, C&C had grown on the back of a single long drink brand in Magners and had trumpeted its singular focus as a strength. But the cider market has moved on rapidly since Magners kickstarted the cider boom four years ago.

The deal comes as C&C reports an increase in volume sales of Magners of 1% in the five months to the end of July on the same period last year. However, Nielsen figures for the year to January showed a 15% fall in value for Magners against double-digit growth for its two biggest rivals, which it sits between in the sales charts.

Bulmers and Strongbow both owned by S&N performed more or less in line with the booming cider market but Magners' drop represented a significant about-turn from its early days when it regularly chalked up three-figure growth scores to take number two spot.

"The judgement call C&C had to make was whether to make a significant investment to steady the ship, because Magners has been going nowhere for some time," says Nielsen drinks analyst Graham Page.

Distribution upsideThat won't have been the only motivating factor. "The directors who have come in are on pretty significant earn-outs, so it wasn't as if they were ever going to sit around and let it grow organically," says a cider industry source.

The deal creates a big distribution base for C&C to target Magners sales, especially as the Scottish on-trade is less tied in to long-term pubco contracts than its English and Welsh counterparts. "It gives C&C a vibrant Scottish distribution that can be leveraged for other C&C products, the principal one of which is Magners," says Page.

There are also significant potential cost savings in being able to bottle Magners for the UK in Scotland instead of shipping it from Ireland. The deal will also reinforce Magners' position in regions where it is already strongest. The Magners "over-ice" phenomenon first evolved in Scotland, the brand's launch point into the UK.

"It's a good geographic fit with C&C's existing operations," says one City analyst, adding that despite C&C's stated aim to boost its Magners brand, Tennent's was also likely to benefit.

"C&C is also acquiring a brand that has significant market share in its core market but has probably not been the jewel in InBev's crown," he explains. "There are opportunities to spend a bit more on it and to grow it further."

Before it was owned by InBev, Tennent's was part of what is now Molson Coors, which pursued a two-pronged strategy to support Carling in England and Tennent's in Scotland. Following the brand's sale to InBev, Molson Coors attempted to knock Tennent's off its perch by launching Carling into Scotland with limited success.

InBev, however, didn't capitalise on the brand's strengths. "When it was sold, the dynamics changed dramatically," says Page. "What's strange is that there hasn't been a big investment by InBev to market Tennent's as a national brand."

Instead, it opted for a licensing deal for the flagging Castlemaine XXXX, which it ended up dropping from its portfolio after disappointing sales. Despite all this, Tennent's still commands a 40% market share in Scotland, so C&C has strong foundations to build the brand on and it won't be distracted by Tennent's Super, which significantly was not included in the deal.

"Carlsberg and InBev have a bit of a challenge with Carlsberg Special Brew and Tennent's Super and there was no way C&C wanted it in its portfolio," says one insider. "They're profitable brands but tough to market."

However, building mainstream Tennent's from scratch in England and Wales is going to be tough when Carling, Foster's and Carlsberg have combined take-home sales just short of £1bn. Even Heineken has yet to claw its way back into the top 10 after its relaunch as a premium product seven years ago (its sales are still less than a 10th of those of Carling).

The best way to crack the English market may well be to boost distribution by striking a similar deal in England as Tennent's in Scotland.

Carlsberg is known to be keen to offload its Leeds brewery, the home of Tetley's ale, which could be one option. "The reality of shipping water around parts of Europe is incredibly expensive," says Page. "If you're going to develop brands in different markets, then you're going to have to brew them under licence somehow."

Tetley's is a substantial brand but it has been in decline, and the brewery in Leeds does have the capacity to brew lager, Page adds. "Dunsmore will be well aware of the implications of that."

With C&C in acquisitive mood, more chapters in the brief but turbulent history of Magners are clearly yet to unfold.

Topics