South Africa: The (AB InBev) empire strikes back

In order to fight back Heineken, AB InBev has implemented a new strategy for South Africa, one of its core markets since the purchase of SAB Miller in 2016 According to a recent Reuters report AB InBev is promoting larger bottles of 1.0 liters for brands like Castle and Carling “to lure price-conscious South Africans to its mid-market beers and away from bargain rivals or home brews.” Also promotions have become more common than under SABMiller.

This is a different approach than in most of the other countries, where the brewing giant has also its own operations. AB InBev is usually known for cutting cost and raising margins instead of volumes.

“Clearly there’s room for making our products more present. That’s definitely a big part of our efforts here,” said Ricardo Tadeu, AB InBev’s Africa zone president. “Of course we discount and promote when it makes sense,” he said. “But the truth of the matter is we never undermine net revenue per hectoliter growth.”

However it looks like the new strategy is a direct answer to its fiercest rival Heineken, which has identified South Africa as one of its strategic markets.

Heineken took full control of its South African operations in April 2016 after dissolving a joint venture with Diageo. The company doubled its sales team by adding 300 people in the country on the southern tip of the African continent and has since then made major efforts to gain market share in the biggest beer market on the continent. Since then Heineken has launched international brands like its Sol Mexican lager.

“SABMiller is already a formidable competitor,” Heineken’s country head Ruud van den Eijnden was quoted in an interview in September 2016. And he went on: “Its new parent company has even more financial firepower than SAB, so in that sense I think competition will intensify.” (inside.beer, 14.9.2016) And recently van den Ejnden admitted: “Both AB InBev and Heineken are pursuing an ambitious growth agenda. With that comes quite intensive promotional activity.”

In addition Heineken pursues a second strategy for growth:  In April 2017 Heinken acquired craft brewer Stellenbrau located in Stellenbosch, 50km east of Cape Town, (inside.beer, 10.4.2017); in October 2017 followed Soweto Brewing from the namesake city southwest of Johannesburg and the preliminary end marked in February 2018 the acquisition of Jack Black’s Brewing from Diep River, a suburb of Cape Town. (inside.beer, 19.2.2018)

However, the path of Heineken to catch up with AB InBev is still long and stony. Heineken has currently a market share of about 7% in South Africa, whereas AB InBev has about 80%.

And AB InBev is already eying other markets in Africa., where it could profit from the experience made in South Africa. “One thing we noticed is that in Africa, in many of our markets, we still depended too much on one pack,” said Tadeu. “It’s very good to have different packs, because you then always have something attractive for consumers in terms of promotions.”

 

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