SOUTH AFRICA – Liquor conglomerate Distell believes the market for in China has enormous potential, and could grow to the same size as the South African market within 10 years.
Distell produces best-selling cider brands Savanna and Hunters, and is ranked as the second-largest cider producer in the world.
The company’s cider range — launched in the late 1980s — has been a game changer for Distell, surpassing its traditional wine and spirits brands as the biggest profit generator.
At the release of its results for the year to the end of June on Wednesday, CEO Richard Rushton said the company had made a strategic move to bolster its presence in China with the announcement of a joint-venture agreement with China Haisheng Juice Holdings Company.
Distell would have management control of the joint venture, which would launch Savanna and Bernini in China, alongside a portfolio of locally produced Chinese ready-to-drink brands.
Asked why the strong-selling Hunters cider brand was not being marketed in China, Rushton said research had shown the Savanna brand resounded strongly with Chinese consumers.
“It will be a long-term project to build a cider portfolio in China. But we think the market has enormous potential, judging by the growth in imported cider brands off a low base.
We think the market could be as big as the South African cider market within 10 years.”
While welcoming the Chinese thrust, market watchers said it was too early to pronounce on the joint venture.
Meanwhile, Distell’s endeavours in the US are also gaining traction. Rushton reported that Distell had started to fully integrate its export portfolio with the Terlato Wine Group, a leading distributor in the country.
He said the partnership had been trading since February 2016 and had already achieved promising listings and distribution for Amarula and Bain’s Cape Mountain Whisky in 17 states.
“We aim to extend this over the next 12-24 months. It’s early days in the US. But expect that over five years, we’ll start seeing incremental revenue growth — although it’s not likely to be a ‘breakout market’ for us.”
Overall, Distell’s results confirmed the pricing power in its liquor brands, with volume growth of just 2.6% translating into a revenue gain of nearly 10% to R21.5bn.
Rushton said that Distell had pushed through two price increases in October and December 2015.
“This is unusual for us. The average price increase was around 6% … perhaps a little more on our premium brands.”
Operating margins were slightly reinforced to 10.95%, helping to lift normalised headline earnings 11.6% to R1.61bn.
Distell hiked its dividend to 214c a share, bringing the full-year payout up 9.5%, to 379c a share.
The payout was underpinned by net cash generated before financing activities of R535m. The company remains lightly geared with gearing of 36.5%.
A breakdown of Distell’s geographic performance showed its core markets in SA still dominating the revenue and profit lines.
Local sales increased 12% to R15.4bn on volume growth of 8.8%, with the gross margin running at 34%, and operating margin at 18%.
Rushton said Distell had improved its marketing and sales capabilities in SA by expanding its national footprint to gain access to 36,000 outlets.
He said Distell’s cider brands continued to flourish, while its wine portfolio significantly outperformed the growing domestic market.
Rushton said Distell’s wine portfolio was buoyed by the 4th Street brand.
“It was a top performer and surpassed the total industry volume growth rate of 9% by recording a 13.9% rise in volumes for the year.”
Distell’s shares were 0.6% lower at R171 at the JSE’s close on Wednesday.