SHARES in AG Barr closed up three per cent after the soft drinks giant signalled shoppers are willing to pay more for Irn-Bru.
Cumbernauld-based Barr reported a plunge in profits and turnover for the six months ended July 27 as it declared 2018 had been an “unprecedented year” for the soft drinks industry.
Last year, Barr prepared for the introduction of the Soft Drinks Industry Levy, or sugar tax, by controversially changing the recipe of its famous Irn-Bru, while also facing a carbon dioxide shortage and an upsurge in demand for its products as the UK baked in record-breaking summer temperatures.
Unveiling its results for the first half of this year, which showed profits tumbled by £4.7m million to £13.5m, Barr reiterated that the promotional activity it staged to drive volume as the new recipe for Irn-Bru came into effect had come at the expense of value. While the strategy had boosted market share, revenue dipped to £122.5m from £136.9m.
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However, Barr said it returned to its “value-driven approach” in the first half, “improving our price positioning and reducing our promotional intensity”.
It added: “We are now seeing positive indications of consumer acceptance of this new price and promotional positioning.”
Shares surged 9% in early trading before easing back, closing up 20p at 606p.
Asked whether the firm would have altered approached its promotional activity in retrospect, AG Barr chief executive Roger White said the question was valid but “impossible to answer”.
He told The Herald: “I still think the strategy we took on board was the right to thing to do, because if we had put the price up last year up, we might have had more of resistance to the changes we were making in the brand.
“We saw six to seven per cent volume growth last year, it was very well received. It would have been nice to have done a little bit less [price promotion]. If we hadn’t had such a warm summer last year, if we hadn’t had a CO2 crisis, alongside the pricing, it would have given us less of a hill to climb this year. But it is what it is.”
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Mr White said the shift in promotional strategy has seen the firm move from packs offering two bottles of Irn-Bru for £2 to £2.25 or £2.50, or six cans for £2.50 to £2.99.
“It’s that change rather than a headline price change,” he said. “We haven’t done anything material to our headline prices, obviously that is for retailers to decide. But the promotional mechanics we are employing are much more aligned with the rest of the market now. We look much more in the middle of the pack now than we did last year.”
AG Barr noted it has also taken steps to tackle “brand issues” on its Rockstar and Rubicon brands. Mr White said Rockstar had encountered “tough competitor activity”, which included “aggressive pricing”, with Barr now working on new product recipes. The timing of innovation on Rockstar is weighted towards the second half of the year, which had an impact on first-half sales.
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On Rubicon, the firm was caught up in “multiple years of decline” which have beset the juice drink category. Mr White added that, in hindsight, the quality of product introduced last year, “isn’t good enough”. “We have a reformulated, much improved product which will launch in the fourth quarter, alongside an upgrade to the packaging and branding,” he said. “That said, the Rubicon sparkling and spring products are doing really well.”
Mr White said Barr has been preparing for Brexit by making sure it has three to four months of ingredients it imports from outside the UK in stock. Analysts are guiding on full-year profits of around £36m, with Barr stating it remains on track to meet its forecast, which it updated in July. It warned in July it expects its profit performance to decline by up to 20% versus the previous year.
Barr announced that non-executive director Martin Griffiths, chief executive of Stagecoach, will step down in March.
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