Johannesburg - Distell, the Cape-based producer and marketer of wines, ciders and spirits, is determined to become the largest cider producer in the world within the next five years.
At present Distell, with the Savanna and Hunter’s brands, is the second-largest cider producer in the world, producing about 15 percent less volume than Heineken, which is the biggest maker of the drink, with brands such as Strongbow.
Cider is the fastest-growing alcoholic beverage category, and is recording particularly strong growth, from low bases, in the US and Australia.
David Nurek, Distell’s chairman, told shareholders at the annual general meeting (AGM) held yesterday that the group was ambitious and did not like being second. “We intend to become the first.”
Nurek said that although the big cider markets were currently in Europe, management believed there was tremendous potential in developing nations.
A growth strategy based on developing markets has seen fellow South African beverage group SABMiller become the world’s largest beer company after Anheuser-Busch Inbev.
SABMiller, with a 29 percent stake, is one of the two dominant shareholders in Distell. Remgro-Capevin Investments holds 58 percent.
European cider markets, outside the UK, are under pressure. France, Spain and Ireland have all reported declining sales.
Distell’s first priority is to nurture the fast-growing South African cider market and its second is the sub-Saharan market. However, it has launched its products in the UK.
At the AGM, Nurek thanked outgoing managing director Jan Scannell for his excellent contribution to the group and noted that group profit had increased from R90 million in 1994, when Scannell was appointed to the post, to R1.1 billion in financial 2013.
Richard Rushton, the head of SABMiller’s operations in Colombia, has been appointed to take over from Scannell with effect from next month.
During the AGM, Chris Logan of Opportune Investments pointed out that Distell enjoyed the highest share rating in the international alcohol sector. Its price-to-earnings rating of 27 times compares with ratios of 24 times at SABMiller, Diageo’s 20 times and Heineken’s 10 times. The comparatively strong rating may be influenced by the fact that Distell has a free float of just 13 percent of its equity base.
Logan, who noted that Diageo’s marketing budget for Jameson whiskey in South Africa was larger than Distell’s entire marketing budget, said Distell “has further to run than its competitors”.
Nurek told the meeting that Burn Stewart, which was acquired for R2.2bn in April, had strengthened Distell’s global reach as well as its leadership position in southern Africa’s spirits industry. Burn Stewart is only the second acquisition made by Distell, which has relied on organic growth to underpin its strong earnings performance. In 2009, it acquired French cognac brand Bisquit.
Nurek said conditions in the global market were tough. “Conditions in Africa are tough, but there is some growth; in South Africa we’ve experienced a slowdown and also in Asia; in Europe conditions are very tough.”
On the issue of a possible alcohol advertising ban in South Africa, Nurek told Business Report that a total ban would result in the established alcohol companies enjoying a “bonanza” in the initial years, as they would be saved considerable marketing expenses. But he added: “It will be very difficult to launch new products.”
Nurek pointed out that there was still no agreement at the cabinet level on whether there should be a ban and on what form it should take. - Business Report