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Last Updated: Friday, 16 April, 2004, 08:47 GMT 09:47 UK
Guinness sell-off rumours rise again
Guinness cans
Could Guinness be looking for a new home?
Drinks giant Diageo's decision to shut its Guinness brewery at Park Royal in London has revived rumours that the firm may sell the iconic beer brand altogether.

The company has strenuously denied the speculation, pointing out that it is on track to spend 150m promoting the jet-black brew this year alone.

"Guinness is one of Diageo's global priority brands," Gerry O'Hagan, supply director for the Guinness brewing operations in the UK and Ireland, told the BBC's World Business Report.

"Diageo is committed to Guinness."

The closure of the 68-year old Park Royal plant comes in response to technological improvements which have left the company with spare capacity in its brewing business, he stressed.

Spirits specialist

But the consolidation of Diageo's European brewing operations into a single site - the original Guinness brewery at St James' Gate in Dublin - is likely to be seen in some quarters as a prelude to a sell-off.

While Guinness is a global powerhouse of a brand, it accounts for a relatively small proportion of Diageo's earnings, runs the reasoning behind the rumour.

Guinness has performed indifferently in the UK
Nigel Popham, Teather & Greenwood
In fact, the firm's wines and spirits operation - which includes top-selling tipples such as Smirnoff vodka and Johnnie Walker whisky - generates over 80% of group profits.

Moreover, while global sales of Guinness are rising thanks to solid growth in Africa and America, the beer's core market in the British isles appears to be in decline.

Sales in Britain fell by 3% in the last six months of 2003, while volumes in Ireland, the beer's original home, slumped by 7%.

"Guinness has performed indifferently in the UK. It's arguably not the right sort of drink in today's market," says Nigel Popham, brewing industry analyst at stockbrokers Teather & Greenwood.

Taste for change

The decline in Guinness sales reflects changing consumer tastes, with younger drinkers expressing a preference for lighter-tasting lager beers.

A gradual shift by consumers away from pubs and bars, where most Guinness is consumed, in favour of drinking at home is also thought to be a factor.

According to the sell-off speculation, dedicated beer groups have shown an interest in taking Guinness off Diageo's hands, freeing the firm up to concentrate on the spirits business.

Anheuser Busch, the world's biggest brewer, has been named as one possible buyer.

That said, analysts remain doubtful that a deal will be done any time soon.

Time will tell

"My view is that it's improbable," says Mr Popham. "There isn't a purchaser around that would pay a good enough price."

Guinness sales in Britain have fallen 3%
Simon Meads, editor of the Drinks Bulletin, an industry newsletter, is also cautious.

"Guinness is one of Diageo's core brands," he says.

"And the company shows no sign of exiting the beer market. It still has Red Stripe lager, and is involved in various other joint ventures."

Ultimately, whether Guinness has a long-term future under Diageo's roof will be determined by the beer's sales performance in the months and years ahead.

But any sign of long-term decline and Diageo is likely to conclude that Guinness is surplus to requirements, just as it did with fast food chain Burger King 18 months ago.

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