Ireland's craft beer scene is booming, but don't expect a brewery buying spree
With a craft brewery, a premium beer, and a host of brands Molson is gearing up to take on Ireland's top two, writes Michael Cogley
Published 01/09/2016 | 02:30
Six years and €45m since its entry into the market Molson Coors has established itself as the third-biggest brewer in the country. The firm, which has Canadian, Carling, and Blue Moon among its brands, has increased its sales nearly ten-fold since its introduction into Ireland.
Sitting in the front room of House, a club in Dublin's Leeson Street, Irish boss Keith Fagan exudes the kind of confidence of a man who's happy that he's done a good job, but is also revelling in the potential of the business' future here.
"We're the third-largest brewer, but there's still a hell of a lot to go for and therein lies the opportunity. It's a bloody tough market, but given the team we have and our focus, we've been successful to date.
"We're currently at 7.5pc market share combined. We've come from a standing start; we were just over 1pc share in 2010. If we look at more recent time periods, over the last two years we've doubled our market share in the on-premises, then in the off-licenses we've increased our share from 6 to 9pc," he said.
That 7.5pc share represents just shy of €100m in retail sales annually and Molson Coors Ireland is aiming to double in scale by the end of 2020.
Molson employs 66 people in Ireland at its base in Maynooth and will look to expand further to strengthen its share in the marketplace.
One way it's doing this is through craft beer. Mr Fagan concedes he does not have the spending power of Heineken and Diageo (the market leaders) and so must look at investing ahead of the curve.
Part of this forward thinking investment includes a move for Cork-based brewery Franciscan Well back in 2013.
While no official sum was put on the purchase, Mr Fagan said the company will have spent €4m on the craft brewer by the end of the year. That overall spend encompassed both the original purchase price and the money put into a new brewery along the banks of the River Lee.
"The Franciscan Well acquisition came as a result of us as a business understanding where the future landscape of the market is. Understanding where the potential growing trends were, of which we could see there was huge potential in craft.
"As an Irish business we didn't have an Irish craft brand and we though that was vital to ensure we could give consumers what they were looking for.
"There were certainly another two or three breweries that were interested in Franciscan Well, who at the time wasn't looking to sell."
In acquiring Franciscan Well Molson now has Ireland's number one craft beer in an industry that is growing at a ferocious pace. However, it is worth noting that craft beer sales pale in comparison to that of mainstream lagers.
"Craft is 2pc of the lager market. Albeit it's growing at 18pc in the off-premise and its growing at about 23pc in the on premise, it's still relatively small. However, one in three consumers have trialled a craft beer in the last three months."
Molson will be far from the only brewer here that is keeping a close eye on the rapid growth of craft beer. There are almost 70 craft brewers dotted across the country and Mr Fagan wouldn't rule out moving for another one.
"I would say our opportunity is realising the further potential that's in Franciscan Well and right now that requires real focus. In essence that's got to be our priority. That's not to say we wouldn't look at opportunities."
Mr Fagan also doubts that his firm will be alone in snapping up more Irish brewers.
"I think there will be some further acquisitions; I don't believe it will be extensive. I don't believe the market, particularly in Ireland, is big enough for there to be extensive acquisitions, however I think there will probably be a number of selective acquisitions," the Molson chief said.
Molson Coors came here in 2010 and despite having it in the name, doesn't own the Coors Light brand here. Instead, that's distributed throughout the country by rival Heineken, something its Irish branch is more than okay with.
The Molson boss said Heineken "are doing a great job" at promoting the beer here.
Molson Coors Ireland Ltd reports to Molson Coors UK and Ireland, which in turn reports back to its European business. That European business finally reports to its global HQ in the US.
The business model means Irish revenues go through a mix of currencies before hitting the bottom line. "It [sterling] would have an impact. As a Republic of Ireland business, we report into our UK business in euro. Our UK and Ireland business takes sterling and reports that to our European business. Our European business then reports that to our US business in dollars.
"There is a minefield of foreign exchange impact as we move through our business structure."
Despite the plummeting value of sterling, Brexit definitely does not seem like a pressing issue to Mr Fagan. "I think like anybody else, I would say all businesses are concerned with the unknown. That's the piece that's uncomfortable.
"There are too many questions unanswered to determine the full or potential impact. Latest indications is that Brexit will be 2019 or beyond, if ever."
In the short term what looks more likely to have a major impact on the Irish market is the $101bn mega takeover of US brewer SABMiller. Anheuser-Busch InBev has been cleared by US antitrust authorities to complete the massive takeover of SABMiller under the condition it release its ownership of the Miller brand.
Molson Coors is set to buy the Miller brand outright as part of the deal. In theory this should mean the Miller brand in Ireland will come under the control of Mr Fagan, and in turn help it towards a much larger market share.
However, the benefit may not be felt overnight. "I believe it will have a positive effect in terms of, at the right time Miller will contribute to our ambition to double in scale by 2020.
"You've currently got the Miller brand at another distributor, at the right time that will come into our portfolio. The Miller brand is quite popular here, I think there's an opportunity to breathe new life into that brand.
"It has a reasonable market share, however we'll need to turn around its performance. It's the local distributor agreements that will need to be worked through to determine if the Miller brand comes through the Molson portfolio in terms of direct management."
Minimum alcohol pricing has become a major issue for the drinks industry with a number of possibilities for its implementation being discussed at a European level.
The Irish marketplace is filled with low-cost alcohol in the off-premises side but the 41-year-old empathised with retailers that need to remain competitive when it comes to drink.
"Irish retailers need to be competitive in the market and ultimately they command the retail sales in the Irish market, not the suppliers. "Any brewer or brand owner wants to secure the best possible price in the marketplace, but the best possible price is determined by the retailer. I think our brewers want to see our beers made available to as many consumers as possible," he said.
While he says both avenues of sales remain key to Molson Coors here, the company does seem to be favouring the off trade market. "In the on-premise, albeit we've doubled our market share in the last two years, in Carling, we're only in one of five bars. We're only in 20pc of the market."
That shift towards off trade has been copper-fastened by the recent launch of its craft beer Franciscan Well in a can for the off-trade.
Three years ago Molson launched its Canadian beer here. It was the biggest launch of a beer in Ireland in over a decade and allowed Molson a brand that could play in the premium market with the Carlsbergs and the Heinekens. It's clear from speaking with Mr Fagan that the 7.5pc market share isn't enough. The North Dublin native has his eyes fixed on the big boys and in some ways the market is playing into those ambitions.
The Irish consumer has changed over the years and is continuing to do so, he says.
"Consumers as I see it have a repertoire of drinks. And that repertoire of beers is far greater today than it was five years ago.
"The consumer choice across off licenses or bars is far superior than previously and what we're seeing now is growth in the market."
Mr Fagan's belief in craft is intriguing. Right now craft is fashionable, but can't deliver economies of sale.
Traditional lager may be more profitable now, it might not be for so long as consumers go in search of a more specific product.
"I would say based on its current scale, the existing business is more profitable. I believe the opportunity on craft, if the market and the industry realises the opportunity in craft, then craft in isolation could become more profitable."