E-Malt.com News article: South Africa: SAB resilient after losing Amstel, but concerned by “institutional” unemployment

SAB, stung after losing the Amstel brand but nevertheless showing resilience, was concerned that "institutional" unemployment could haunt the economy, managing director Tony van Kralingen was quoted as saying by the Business Report on September, 19.

"The cycle will improve but the real issue that confronts us is very high institutional unemployment; we are not making enough headway," said Van Kralingen.

Unless the country improved its global competitiveness, including its talent pool through improved education, "this could come to haunt us in the long term".

Widely respected as a developer of talent, SAB provides about 15 executives a year for global parent SABMiller.

SAB has a strong interest in jump-starting South Africa's economic growth, for it believes that steady but unexciting growth is the greatest inhibitor to increasing volume sales. The company argues that potential opportunities do not lie only in converting the growing middle class from its mainstream beers to premium brands, but also in increasing the size of the pie.

South Africa is not a mature beer market and still has a relatively low consumption per person, in line with emerging markets such as Brazil, said Van Kralingen.

But after decades of dominating the local clear beer market, SAB was given a rude shock when multinational Heineken took back the Amstel brand in March last year.

That caused volume market share to plummet from 95 percent to 86 percent the next month, before steadily recovering to about 92 percent.

Both SAB and Amstel suffered. Heineken lost out on licensing income and had no product on the shelf before importing it, a costly exercise.

Following that, Heineken announced this year that it would build its first brewery in South Africa. This will give SAB a run for its money in the premium beer category.

Heineken and minority partner Diageo, the world's biggest spirits company, were "very serious and here to stay", Van Kralingen said.

The strategy to counter the Amstel loss was to prise open Amstel drinkers' habits by offering them greater choice, Van Kralingen said.

To this end, SAB launched Hansa Marzen Gold and Grolsch in quick succession and will launch Dreher next month.

Grant Swanepoel, a beverages analyst at Barnard Jacobs Mellet, said SAB was flooding the market with premium brands to counter the loss of Heineken's Amstel.

Swanepoel believed the strategy was working as it applied to the top end of the market, but added that its success might leave SAB open to an attack from Heineken in the mainstream beer market.

If Heineken struggled to get enough top-end production through its new 2.8 million hectolitre brewery to make the investment viable, its hand might be forced to enter the mainstream beer market, Swanepoel said.

Van Kralingen said that even taking into account the steady selling characteristics of beer, the company had withstood the downturn well.

In the year to March SAB's local volume sales were flat overall, even after losing the high-margin Amstel brand, which had 9 percent market share.

Mainstream brand sales, which include Hansa and Castle, were up "2 percent to 3 percent, a pretty good performance" in the tough economy.

Premium sales had declined as consumers traded down, including Amstel drinkers after the beer disappeared from the shelves. The biggest beneficiaries of the Amstel loss were Hansa and Castle Light.

Hansa Marzen Gold, the first product launched to compete with Amstel, had initially gained market share, but that had "come off a bit" after Amstel was reintroduced, said Van Kralingen.

The loss of high-margin Amstel resulted in earnings before interest, tax and amortisation declining 6 percent.

SABMiller's share price increased by 0.39 percent to close at R174.10 on the JSE on September, 18. The beverages sector rose 0.29 percent.


23 September, 2008