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Red Stripe to spend J$1.3b on energy saving

Published:Wednesday | January 30, 2013 | 12:00 AM
The Red Stripe Jamaica brewery at Spanish Town Road, Kingston. - File

Steven Jackson, Business Reporter

Red Stripe will spend US$14 million (J$1.3 billion) on energy initiatives at its brewery aimed at slashing costs by 20 per cent over the next three years.

The company previously disclosed the projects, but on Monday officially priced and confirmed them.

They include a factory upgrade to reduce cooling costs and the building of its own cogeneration power plant to reduce electricity expenses. The plant will become operational this year and allow Red Stripe to become fully independent of the Jamaica Public Service Company's electricity grid.

"As you know, energy costs are one of the biggest challenges facing manufacturers in Jamaica and Red Stripe decided to spend US$7 million to build our own cogeneration plant," Richard Byles, Red Stripe's chairman, told a press conference at the company's Spanish Town Road offices in Kingston.

"We have conducted a tender process for the equipment and are currently reviewing bids," said Byles, adding that "we expect to start generating our own energy by October of this year."

It will be a three-megawatt plant fuelled by liquefied gas, similar to cooking gas.

Modernisation of the brewery would involve replacing the brewery's energy-intense storage units with new technology that obviates the need for external cooling.

"We are finalising the business case in early February and estimate these changes will require a capital expenditure of another US$7 million," Byles said.

Joint venture

Cedric Blair, managing director of Red Stripe, explained that the work would entail installing vertical fermenters, vertical bottling tanks, and maturation tanks.

"These measures are aimed at saving the company 20 per cent on costs over three years," he told Wednesday Business after the press conference where a new joint-venture distribution outfit between Red Stripe, a Diageo Company, and Pepsi-Cola, owned by Cabcorp, was unveiled.

Red Stripe's after-tax profit of $340 million for the three months ending September 2012 jumped 123 per cent over year-earlier levels. The profit was mainly linked to slashing its marketing costs by a quarter over year-earlier levels to $313 million.

Additionally, Red Stripe's costs of sales were down by 17 per cent year on year to $1.4 billion, mainly from reduced net sales. However, its selling and administrative costs rose by about eight per cent to $310 million.

The joint venture, called Celebration Brands, will deal with 100 per cent of sales and distribution of the companies' brands.

Previously, Red Stripe distributed all of its merchandise and 70 per cent of Pepsi-Cola's. Distribution of the remaining 30 per cent was undertaken by Pepsi-Cola and the remainder outsourced to the Naggo Head, Portmore, St Catherine-based LAMB Distributors.

LAMB Distributors declined comment when contacted by Wednesday Business.

Two hundred new jobs are expected from the joint venture between Red Stripe and Pepsi.

Red Stripe currently has four main distribution centres. The move is aimed at servicing retail outlets in remote areas with a greater frequency than once per week. Celebration Brands will appoint as its managing director Gustavo Flamenco, the current head at Pepsi-Cola Jamaica. Flamenco said that a new head of Pepsi Jamaica would be announced shortly.

Executives declined to give details or financial targets of the company. Celebration Brands Limited will have its own board of directors, with three representatives from each partner, and will see a phased roll-out of operations between April and September 2013.