RED Stripe Company expects it will have to lay off workers in order to counter shrinking profits derived from lower beer volume sales hit by excessive increases in tax.

Last Friday, the local brewer notified the Jamaica Stock Exchange that it would undergo an organisational review of its brewery operations at the end of June.

“The company, which has over the past year implemented cost reduction strategies in all areas, is further reviewing its operating structure to compete effectively in today’s business environment,” said the release to the JSE. “This review will be completed in two weeks with all impacted employees receiving redundancy packages including outplacement support which covers career, financial and psychological counselling, as well as overall support in dealing with the loss of employment during these difficult times. Red Stripe will also assist in vocational training for affected employees who are desirous of developing a new skill.”

Red Stripe boss, Al Barnes said that challenges posed by economic conditions and the competitive environment have pushed the company to examine its “business model now to stop the performance decline and adjust to deliver long-term business sustainability”.

The decline, the brewer said, was set on by “tax inequities against beer that were introduced last year have put us in a significantly non-competitive position vis-à-vis other alcohol categories, particularly as beer is a highly elastic category”.

“Red Stripe Light now pays 1000 per cent more tax than an average tonic wine; this inequity has severely impacted us,” Barnes added.

Last May, the Government in one of its five tax packages in 2009 increased SCT on beer to 25 per cent from previous range of 16 to 21 per cent. Government was seeking to raise more than $20 billion to close the gap in the budget as a result of the economic downturn affecting small and large economies worldwide.

Red Stripe board chairman, Richard Byles said: “Any redundancy decision is always regrettable, but I am committed to leading a business that can survive tough times by doing what is right to maintain the long-term viability of the company for all the employees and stakeholders and that means downsizing our operation to reflect today’s business imperatives.”

Higher cost of sales and lower production volumes resulted in a 35 per cent decline in Red Stripe’s net profit to $716 million for the nine months ending March 31, 2010.