Friday, September 23, 2011


In a whimsical article in the Age Keith Dunstan bemoans the sale of Fosters. Asking where did it all go wrong he lays the blame at making all the beers taste the same.

Certainly the end of localisation in beers changed the way the global brewing business operated. But that perhaps followed the growing trend for more frequent internal migration and overall more general international travel.

If your local served Carlton Draught and you never went anywhere else then beer was Carlton.

The second big inroad was the cycle in the 1970s and 1980s of the "discount" beer brands...Courage and swan leading. Making price rather than taste a discriminating factor changed the game. Suddenly getting big and getting scale counted.

Carlton United Breweries had achieved that already in Melbourne. To the North Toohey's, Tooths and Castlemain got swallowed up, amalgamated with NZ's Lion and sold to the Japanese.

CUB fell under the control of John Elliott, former McKinsey consultant. He understood the need to get big and broke CUB out of its domestic bounds. As foreign brands arrived in Australia Elliott set out to "Fosterise" the world. When you think about it there is no real reason why a beer can't be as successful as Coca-Cola in creating a single global brand. There are a few more challenges in getting a consistent flavour - you need to brew locally and can't just ship a concentrated syrup.

The Fosterisation had two strands - enter markets with the brand and acquire local breweries. The acquisition strategy was based on having an ongoing valuation of every brewer and being ready to move anytime the proposition was valuable.

The strategy however hit a wall. The wall was the debt mountain built up by Elliott. But that debt mountain wasn't fuelled by the acquisition strategy alone, but by hubris.

Elliott decided he wasn't getting enough reward for his effort in growing shareholder value. The value was coming from his entrepreneurship, not shareholders. So he embarked on a bold MBO to become the owner rather than the manager.

That was the debt mountain that brought the game to an end.

Without that single error - that act of over-reaching by Elliott - we would probably be seeing SAB Miller being acquired by Fosters rather than the other way around.

Mind you as News Corp, TNT,James Hardie and others have shown before once the domestic company becomes truly global they are unlikely to stay headquartered in what Paul Keating once referred to as "the arse end of the world".

PS A really useful policy question to ask is why that should be so. The use of modern ICTs should mean that you can be accessible to global capital markets from anywhere. Indeed there is an argument that by being in somewhere like Australia you could be more readily accessible to them all - by having no home city bias - than making the decision to be based in New York or London.

That would mean changing the focus of strategies around Sydney as a financial centre from housing large numbers of traders in buildings in Barrangaroo to what the ICT infrastructure is - with particular emphasis on videoconferencing.

Novae Meridianae Demetae Dexter delenda est

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