19 Mar 2018 Africa: Beer’s final frontier
Global brewers are salivating over the growth prospects of the African continent….
Carlos Brito, CEO of AB InBev (above), the world’s largest beer company, said at the recent release of the company’s full-year results that the tie up with SABMiller in 2016 had “exceeded expectations”.
The acquisition of the South African brewer helped the group grow its revenue 5.1% to $45.5 billion during the year to end-December 2017.
With the acquisition virtually bedded down, synergies extracted and respectable earnings for the year, AB InBev is now focused externally with plans to capitalize on the promise of SABMiller – growth in Africa.
With the rebound in commodity prices in 2016 and 2017 the outlook for African beer markets is bright.
And against a backdrop of muted beer growth globally, the relatively under-developed beer market on the continent has global brewers salivating.
While AB InBev is the dominant player on the continent (thanks to SABMiller’s multi-decade investments there), the likes of Heineken and Diageo have been ratcheting up their competitive activity in the region.
Arguably, this wave started with Heineken’s decision in 2007 to repatriate the Amstel brand in South Africa and build its own brewery.
This was followed by SAB’s entry into Nigeria in 2012, and more recently with Heineken’s greenfield entry into the Ivory Coast and Mozambique. This is according to research from investment firm Sanford C Bernstein.
At this point, Africa is still a modest Africa contributor to AB InBev’s group profits. In the last year, Africa accounted for about 7% of group equity-adjusted EBIT.
“We are very positive about Africa,” says Ricardo Tadeu, AB InBev Africa president.
“In markets like Tanzania, Ghana, Nigeria, Mozambique, where consumption is lower per capita, we experienced mid-teen growth. South Africa is a more developed market and the rate of growth is not as fast.”
To maintain this type of growth, AB InBev is investing heavily in developing the right portfolio of products for each market, and in enhancing production capacity and distribution.
The brewer already sells everything it produces in Nigeria, for instance, and is planning a greenfields expansion project there. It has also expanded its operations in Zambia and Ghana.
“Having a local understanding of each market and each brand and how it connects to the consumer is very important. We are fortunate that SAB Miller has a well-developed sense of the markets it operated in.
“Affordability is key. Because GDP per capita is lower than average we must provide excellent products at the right price. If you can do that, and get it to consumers, you should do well,” says Tadeu.
Heineken earns a similar proportion of its earnings from Africa – about 8%. This is down from a healthy 18% in 2014, prior to the slump in Nigerian profitability.
Nigeria and South Africa are Heinekens biggest businesses in Africa, but it also has important businesses in Ethiopia, Egypt, Rwanda and Burundi, which fall outside the “Big 8” African beer markets, according to Bernstein.
Africa is smaller for Diageo, which earns 2-3% (also suppressed by the Nigerian slump) from its African beer operations, according to Bernstein.
But it is no less strategic, with Africa historically a key driver of Diageo’s beer business and Guinness in particular. This business will provide the platform from which to build a strong spirit business…..