Thu | Aug 17, 2017

Red Stripe bringing home beer production from US

Published:Wednesday | February 17, 2016 | 2:00 AMCamilo Thame

Red Stripe Jamaica plans to bring production of its beer destined for sale in the United States market back home to Kingston.

This will mean the end of a third-party brewing contract with City Brewing in Pennsylvania, which commenced in 2012.

The local brewer's new managing director, Ricardo Nuncio, is scheduled to provide particulars on the move at a press conference this morning, accompanied by Finance Minister Dr Peter Phillips.

The company wouldn't hint at details of today's announcement, but the finance minister's presence might speak to the employment tax credit - a provision under the new tax legislation that allows for companies to reduce income tax payable by up to 30 per cent through measures that lead to increased jobs - from which Red Stripe should benefit.

It's not likely that the Government would give the brewer a tax break under Section 86 of the Income Tax Act, from which Red Stripe benefited between 2002 and 2006. Then, the $2.2 billion, five-year tax break was given to the brewer to shore up the company's export drive.

EXPORTREVENUE INCREASE

Red Stripe's export revenue climbed from US$13 million in 2002 to US$40 million by 2007. However, the beer maker struggled to achieve profit sustainability, incurring operating losses of US$600,000 and US$2.8 million in 2007 and 2008, respectively; and seeing it fall from US$2.1 million in 2009 to US$100,000 in 2010.

It, therefore, migrated much of its production to the US in 2012, and operating profit surged to US$8.9 million the following year. It fell to US$7.5 million in 2014 due to reduced beer consumption during the prolonged winter season, and delisting in major supermarket chains in the US, as well as pubs in Great Britain. Full-year volumes were slightly less in the US in 2015 when volumes were similar to year-earlier levels in the United Kingdom (UK), but operating profit totalled US$8.7 million.

In any case, the latest move will translate into increased local employment.

When the Spanish Town Road-based brewer relocated the production of up to 3.5 million cases (approximately 280,000 hectolitres) of beer to the North American market in 2012, it cut more than 70 jobs.

Red Stripe currently employs around 500 persons and produces a million hectolitres a year domestically, based on Wednesday Business calculations. The company reported saving 200 million litres of water in 2013 when it lowered the amount of water it uses in the brewing process from 12 litres per litre of beer produced to less than 10 litres.

Repatriation of beer production is likely to be a result of Heineken buying the local brewer and licences for Red Stripe in the US, Canada, and the UK from Diageo. It also became the licence holder for Dragon Stout and Malta in the UK.

Diageo ended its longstanding third-party brewing contract with Charles Wells in the UK in mid-2014 and brought production in-house, which is likely to be what Heineken plans to do there. The Dutch-based brewer does not have any production facilities in the US.

camilo.thame@gleanerjm.com