S&N cheers end of supermarket bloodbath

Scottish & Newcastle, Britain's biggest brewer, said yesterday it would pump an extra £18m into promoting its lager in the UK as its bitter price war with supermarkets begins to ease.

Scottish & Newcastle, Britain's biggest brewer, said yesterday it would pump an extra £18m into promoting its lager in the UK as its bitter price war with supermarkets begins to ease.

Keith Hogg, the head of S&N's off-trade business, which supplies beer to shops, said the price cuts enforced by the supermarket chains on the brewing industry over the past few years "could only be described as a blood bath".

"It was commercial suicide and the market was in crisis," Mr Hogg said, adding that the price of beer in supermarkets halved between 1998 and 2002.

He said supermarkets were now prepared to allow the brewers such as S&N to increase their prices, having proven that customers were willing to pay more for quality lager. At Christmas 2003, customers were paying 13 per cent more for S&N beer than at Christmas 2001. But pricing pressure in this area is continuing and prices are not yet at levels acceptable to S&N.

The news of improvements in the UK business came as S&N said its profits in the first half of the year would be slightly ahead of last year thanks to improved trading conditions and better-than-expected cost savings.

S&N, which is home to brands such as Kronenbourg, John Smith's Strongbow cider and Foster's, said its European beer markets were also stronger than last year.

It was forced into a radical shake-up of its UK operations in February last year after major problems with its supply chain that led to a profits warning. Between 2000 and 2003, S&N saw UK beer sales fall 5.4 per cent, costs rise 10 per cent and operating profit decline by 16 per cent.

In April it announced the closure of its historic Newcastle brewery in favour of larger premises on Tyneside. This has led to major cost reductions for the group, lifting savings to £60m by the end of 2006 from the £45m that had been expected.

S&N is now determined to spend an additional £18m on its £100m advertising and marketing budget to boost sales. Foster's has had £8m on television advertising penned in for the rest of the year, as the group aims to make the lager the fastest growing brand in the UK.

Comparisons going forward will get more difficult for the company, however, as last year's summer trading was very strong due to hot weather. S&N shares closed up 0.5 per cent at 441.75p.