economics

May 11, 2010

Heineken Moves Step Up Beer Challenge in South Africa

Filed under: Uncategorized — ktetaichinh @ 1:20 pm
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By ROBB M. STEWART

JOHANNESBURG—A beer war is brewing in South Africa as Heineken NV steps up its campaign to challenge homegrown beer giant SABMiller PLC in sales to South Africa’s growing black middle class.

The Dutch beer giant is investing in marketing by producing the new television talent show “Class Act”—roughly three million South Africans tuned in to the first episodes this month—to watch unknown young actors from around the country compete for a contract. Its Amstel-brand lager is also prominently placed on the popular, long-running soap opera “Generations,” which focuses on a successful middle-class black family in Johannesburg.

And on Thursday Heineken, the world’s third-largest brewer by volume, officially opened Sedibeng, a large-scale brewery located south of Johannesburg. The opening gives Heineken the ability to brew its namesake and Amstel brands locally for the first time since 2007, when it terminated SABMiller’s license to brew Amstel.

“If you have to compete against SAB, you need to have strong fundamentals and a large brewery,” said Tom de Man, president of Heineken’s operations in Africa and the Middle East.

Mr. de Man declined to specify the savings the companies expect by producing drinks in South Africa and sourcing bottles locally, but he said the €310 million ($413 million) brewery will increase profitability and make it easier to grow volumes.

Beer companies have increasingly focused on developing economies as sales in Europe and the U.S. have slowed. Sales by volume grew 7.2% in South Africa from 2004 to 2009, compared with growth of 5.6% in the U.S. and a decline of 4.9% in Europe during that time, according to Euromonitor. For the five years to 2014, South African beer sales are forecast to grow 30%, while U.S. and Europe volumes are expected to be flat, Euromonitor said.

The competition is heating up in advance of Africa’s first hosting of the World Cup soccer championship, which begins in South Africa June 11.

The Budweiser brand, owned by Anheuser-Busch InBev NV, is the official sponsor of the tournament and is the only company allowed to sell its beer at stadiums during the event—although Bud beer sells only marginal volume in South Africa.

But both Heineken and SABMiller, which ranks second in the world after Anheuser, are expecting overall beer consumption to rise during the three-week competition. SABMiller has forecast an increase of up to 6% in beer sales during the period, with roughly 56,000 outlets serving its products nationwide.

The newly built Sedibeng brewery, which is co-owned with Diageo PLC, will also produce Smirnoff Storm and Spin blended drinks, and eventually Diageo’s Foundry cider and Namibia Breweries Ltd.’s Windhoek lager.

“There’s a lot of growth left in South Africa,” said Nick Blazquez, managing director of Diageo Africa. Mr. Blazquez said the emergence of a black middle class has fueled demand for premium beers and spirits, segments that continue to grow.

Premium beer accounts for about 20% of the total beer market in South Africa, while the beers produced by Heineken and its partners account for about 56% of this segment, Heineken’s Mr. De Man said. The company doesn’t release sales figures for the market.

SABMiller, for its part, claims to hold nearly 90% of the country’s overall beer market and slightly less than 60% of the broader alcohol sector. SABMiller has seven breweries in the country.

SABMiller has also stepped up the competition. Days after losing the Amstel license—which at the time it said represented 9% of its beer sales in the country—it unveiled plans to launch a new premium beer, Hansa Marzen Gold. The London-based company, which originated in South Africa with Castle Lager in 1895, also has been pushing its Miller Genuine Draft, Grolsch and Peroni. SABMiller didn’t respond to a request for comment Thursday.

Heineken and Diageo teamed up in South Africa with Namibian Breweries to create Brandhouse Beverages Pty. Ltd. in 2004, a year after Heineken took back the rights to its namesake beer from SABMiller.

Later, after it also reclaimed Amstel from SABMiller, it began importing the beer from its European breweries.

The Amstel logo is prominent on “Class Act,” the reality show that premiered March 13. Over the weeks of the show viewers will vote on contestants competing in a series of acting challenges who hope to win an agent, a trip to New York for acting classes and a starring role in an Amstel beer commercial.

The beer battle between the companies increasingly is focusing on townships and black South Africans who previously were kept out of the mainstream economy by apartheid but are now finding increasing affluence.

In upmarket bars in Soweto, the sprawling township on the southern edge of Johannesburg, Heineken and Amstel feature prominently alongside SABMiller’s rival premium brands.

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