South Africa: Competition Commission’s approval of AB InBev, SABMiller deal protects craft brewers

As Anheuser-Busch InBev (AB InBev) sails over the hurdles it must clear before gulping down SABMiller to form a company that would brew one in every three beers consumed globally, craft beer enthusiasts will be pleased to note that the South African Competition Commission has acted to protect their place in the SAB-branded fridge, eNCA reported on June 9.

SABMiller said at the beginning of this month that the Competition Commission of South Africa had recommended to the Competition Tribunal that its proposed combination with AB InBev be approved with conditions.

Terms underlying this recommendation included the establishment of a R1 billion development fund and the agreement to sell SABMiller’s 27 percent interest in JSE-listed Distell within three years. The parties also made pledges that there would be no merger-related job losses and that the new company would not depart from SABMiller’s popular policy of maximising local production.

The benefits of the R1 billion fund, with a mandate to invest in agricultural outputs (barley, hops and maize), as well as in the growth of emerging and black farmers, will bring cheers from way beyond the beer drinking market.

Particularly interesting for craft brewers is the commission’s recommendation that AB InBev be required to continue supplying raw materials such as hops and malt – of which SABMiller is a dominant producer in South Africa – to small brewers.

The parties to the merger have also agreed not to induce their suppliers to ice out the small brewers in any way. In outlets or taverns where SAB supplied the only fridge, which usually carried its branding, retailers or tavern owners should be free to allocate capacity to competitors’ products.

It is reassuring that the struggling taverner and smaller brewer is being considered in this mega-merger. In fact, according to Cape Town-based micro brewer Alexandre Tilmans, the merger might even advance the cause of craft brewers.

Tilmans said he was a bit sad that the iconic South African flagship brand would start to disappear but said he was confident that this merger would help craft breweries.

One possibility he suggested was that SAB/InBev might take the concept of speciality brewing into markets where it had not yet gained traction, including the thirsty and growing mass market.

As a Belgian brewing beer in South Africa, it seems Tilmans doesn’t have much to lose either way, but the owner of the two-year-old Belgian brand Leopold7, which will soon be brewed in South Africa, said he thought AB InBev and the smaller craft businesses would both continue to grow the pie rather than focus on how it was carved up.

Kevin Wood, owner of micro brewer Darling Brew, agreed that there was room in the market for a variety of players, adding that InBev’s experience abroad bore this out.

“If you look at the objective information coming out of America, craft beer goes from strength to strength in InBev’s backyard,” he said.

Tilmans added: “It is in SAB/InBev’s interest to keep the craft brewery market growing since it generates interest in beer and builds education around beer.

“I wouldn’t be surprised if in a couple of years’ time, given the growing interest in specialty beers, SAB/InBev releases a mass market amber ale, for example, which would in turn help craft breweries get more visibility in areas and communities unknown to them at the moment.”

Approval for the merger is understood to be imminent in two of the other key jurisdictions where the parties operate, namely China and the US.

10 June, 2016