AG Barr: profits fizz

Soft drink company AG Barr has reported strong sales for the six months ended July. These results came despite sluggish growth in the market, and a dip in sales of the company's energy drink brand Irn Bru 32. With the company recently announcing a franchise agreement with US-based Rockstar for the UK distribution of its energy drinks, the company has reason to be optimistic about future growth.

For the six months ended July 28, AG Barr announced an 8% jump in first-half pre-tax profit and an 8% increase in turnover compared to the same period last year, despite poor summer weather. While the UK soft drinks market has experienced limited growth over the past six months, Barr's near double digit growth can be attributed to its increased product diversification.

Although the company's core carbonated drinks brands have continued to contribute to sales growth in the UK, the company has deftly diversified its portfolio through acquisitions, and new product development. In March 2006, Barr successfully launched Irn Bru 32, an energy drink, into the UK market, and the drink sold an estimated seven million cans in its first six months. While the product has reported a drop in sales in 2007, this was inevitable after the brand's hugely successful launch. Meanwhile, in June 2006, the company acquired Strathmore, a bottled water brand, in an effort to compete in the fast growing bottled water market.

This enhancement of the company's product portfolio has seen the company's UK soft drinks market share increase in a market in which major companies such as Coca Cola and PepsiCo have seen their market share decline. Indeed, Datamonitor estimates that AG Barr's market share has grown from 2.2% in 2002, to 2.5% in 2006. The addition of a bottled water brand and an energy drink is likely to grow market share further.

The company's announcement on September 26 that it has signed a five year deal for the supply of Rockstar energy drinks in the UK is likely to further benefit the Scotland-based company. Rockstar is the third largest energy drink in the US, and will offer AG Barr two additional energy brands to compete with market leader Red Bull. This will prove beneficial given the fact that energy drinks are forecast to witness strong growth between 2006 and 2011.

Looking forward, AG Barr has assembled a product mix which will enable it to capitalize on the consumer trends which are shaping the soft drinks market. The company's first-half results demonstrate that there is still demand for its carbonated drinks, a rarity in the soft drinks industry, and the addition of a bottled water brand and two energy drinks is a clever move by a company going places.

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