Sabrina Gordon, Business Reporter
Red Stripe Jamaica's plan to migrate a portion of its production base to North America will reduce output at its Kingston operation by up to 3.5 million cases, and eliminate 70 jobs.
The production shift is meant to rescue the company's bottom line, hit most recently by a revised excise tax structure, a depressed domestic beer market and high-energy costs.
Red Stripe, a subsidiary of Diageo Plc, will start manufacturing the beer it sells to North America in the United States under contractual arrangement with City Brewing in Latrobe, Pennsylvania, starting next year.
"It's cheaper; about 50 per cent less than what it cost us to produce here in Jamaica," said Richard Byles, chairman of Red Stripe.
"The fact is if we want to have a real future and to be a global brand, we have to be successful in the US market," he said.
"Red Stripe in North America accounts for less than one per cent of the US beer market, so we see a lot of potential with greater investment in the marketing," Byles said.
Production at the local manufacturing plant will decline by about three to three and a half million cases, which is the quantity the company normally produced and export to the US annually, he said; and will result in the loss of approximately 70 jobs.
Byles said the 50 per cent savings expected from this arrangement will be pumped back into advertising and promoting the brand in the US market to grow sales.
Part of those savings, which he did not quantify, will come from the elimination of bottle imports required to produce the 3.5 million cases.
"What we are doing is bringing empty bottles here," said Byles. "Fifteen years ago, we used to make bottles; we no longer do and have to bring the bottles here, brew, and send back. This is a very expensive process for us; it's just not economical," he told Sunday Business.
"It cost four to five times less than the amount we produce here, and it's that efficiency in the cost that we are trying to reap."
Red Stripe beer is currently produced in only a few locations outside Jamaica. It includes Canada, where canned beer is made exclusively, and in the United Kingdom by Wells and Young, as well as Antigua in the Caribbean, by Antigua Brewery.
Licensed by Desnoes and Geddes
The beer is brewed under licence from Desnoes and Geddes Limited, the company that owns the Red Stripe brand. Diageo acquired majority ownership of D&G in 1993.
The Jamaican plant will continue to produce for its home market, Brazil, Canada and Europe, and will earn royalties on US Red Stripe sales.
The new production arrangement for the US market will come into effect six months' time, in April 2012.
Last year, following the imposition of new tax on alcoholic beverages by the Government, the beer company had threatened to pull production, complaining that the taxes would cripple its business.
"We want to see the tax equalised, no advantage for one product over the other," said Byles.
White overproof rum still enjoys an advantage," he said.
Red Stripe turnover at year end in June 2011 reflected a marginal dip to J$13.2 billion compared with J$13.3 billion in the previous year. Profit rose 28 per cent to J$1 billion.
Its domestic market continues to flatline. The new production strategy will allow the company to invest more time in its local market, Byles said.
"What it wants is innovation, brand extension, new, fresh and exciting products to get people drinking," said Byles.
"This move actually allows us to focus on the domestic volumes. We have recently launched a new advertising campaign and we have many plans to drive volumes domestically," he said.