US exports help double Red Stripe profits
BY JULIAN RICHARDSON Assistant Business Co-ordinator email@example.com
RED Stripe more than doubled first-quarter net profits to $340 million, with the improvement in the bottom line partly attributed to its new export model in the US.
The brewer grew its first quarter net profit by 123 per cent - from $152 million in the 2011 first quarter - over the three months ending September 30, 2012 despite a two per cent decline in net sales value.
Red Stripe's saw net sales in its domestic portfolio jump by nine per cent, but its export segment posted a 25 per cent decline in net revenues against the background of a new royaltybased business model in the US, where a manufacturer produces the beer under licence and Red Stripe is paid royalties for each bottle sold.
“This is currently resulting in lower net sales value but has, however, had a positive impact on trading profit after factoring the exclusion of costs of sales and marketing expenses previously required to support that market,” reported the company.
Cost of sales for the September 2012 quarter was $1.5 billion or 13 per cent less than the corresponding period last year.
Red Stripe announced plans to move production of its beer destined for the US from Jamaica to North America under a licence agreement a year ago. While the company said the move would result in loss of jobs, it said the returns it expects from higher penetration into the US market and more focus on the domestic side of its business should put the company on a stronger footing.
Against this background, the company is reporting that new product innovations in its domestic portfolio, namely the low-priced Talawah beer and D&G white overproof rum, have driven the growth in the segment.
What's more is that despite a 19 per cent increase in first-quarter marketing expenses in the domestic segment to $49 million, Red Stripe's overall marketing expenditure declined by 27 per cent to $313 million for the period, with the company saying that the “savings” was influenced by its new business model in the US market.
“Our Red Stripe International licensee partners, particularly in the US, also made significant marketing investments mainly through advertising as part of agreed plans to grow the brand in their markets,” the brewer said, noting that “These expenses are borne by the licensee and have allowed us to achieve these savings locally.”
Cedric Blair, in Septermber, replaced Renato Gonzalez at the helm of Red Stripe in September. Under Gonzalez's leadership, the company began to enjoy higher domestic profits against the background of greater levels of efficiencies which led to lower costs and greater diversification of its product mix, including increasing sales volumes of beverages with lower alcohol content.
The brewing company introduced at least five new beverages during its last financial year, including a trio of flavoured light beers and Talawah, a lager packaged in a 250 ml bottle in the Jamaican colours of black, green and gold to commemorate the country's 50th year of Independence.