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The Voice

Red Stripe's price increases could dampen sales
published: Friday | November 5, 2004

Susan Smith, Staff Reporter

RED STRIPE is now expecting a decline in sales on the domestic market as a result of the recent price increases on some of its products, says marketing director, Mr. Wayne Lawrence.

The company has been suffering a decline in domestic sales on products since last year where it registered a four per cent decline in the volumes of most of its popular brands in the second half of 2003.

The then director of finance, Lisa Nichols, linked the decline to price increases on products.

During that period, government levied price increases were placed twice on its products, the second being a 45 per cent increase on Special Consumption Tax on alcoholic items. At present, Mr. Lawrence is hoping that the new increases will not drop sales below the company's expected target. "Given the history of price increases, we are working with a projected decline anywhere between five and eight or nine per cent," he explained. "We are hoping the decline doesn't go beyond that." He hopes that the decline is no more than 8 per cent greater than last year's. Communications director for Red Stripe, Maxine Whittingham, told the Financial Gleaner that the price increases at this time were inevitable. "The cumulative inflation over the time period since we last had an increase which is over two years ago, has affected the cost of business," she said.

Mr. Lawrence spoke directly to the cost of producing beer as a major factor.

RISING COSTS

However, there are also indications from the marketing director that an attempt to increase the volumes from sales is one of the major reasons behind the price increases."We have tried to keep the increase as minimal as possible and it wasn't a decision we wanted to make," he explained. "But our costs of making beer has been rising," he added. Nevertheless, the four of the seven brands experiencing the price increases do not include the largest, 'Red Stripe', according to Mr. Lawrence, this would be begging for a wider decline in margins.

The four brands attracting price increases are Guinness, Heineken Red Stripe Light and Malta. Guinness and Heineken have increased by 12 per cent while Red Stripe Light and Malta have increased by 13 and 8 per cent respectively.

The Financial Gleaner understands that approximately 87 per cent of Red Stripe's revenue comes from the domestic sale of liqueur. With Christmas approaching the company hopes to increase the volumes on domestic sales with intense and strategic marketing, even with the expectations of marginal declines.

"Our marketing plans which are done about a year and half ahead include many different promotions for the brands," he said. "Our marketing plans are there to drive sales and encourage consumption, especially as year end draws near." Although the brewery giant said, in an earlier comment, that it made no independent price increases for more than two years, the public has recorded three price increases on Red Stripe products within that period.

NO CAUSE FOR ALARM

This means that consumer spending on alcoholic products may be further reduced. Mr. Lawrence stressed that there is no cause for alarm on the part of shareholders of the stock, and says he is still optimistic that the company's sales performance for this quarter will not deviate too far from that of the corresponding period in 2003.

Red Stripe's third quarter results, according to its unaudited financial statements dated March 31, 2004, reveals that sales increased to $5.9 billion, a 19 per cent increase over the comparative period in 2003 when it had turnover of $4.9 billion.

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