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Heineken grabs market share from under SAB’s nose

Seemingly from nowhere, the Dutch multinational beer group has staked out a 13% share of the local market, as of August this year.

IT WAS JUDGED the most exciting thing to happen in the local beer industry in 40 years when, in 2007, seemingly out of the blue, Heineken took back control of the production, marketing and distribution of Amstel from SA Breweries (SAB).

Old hands at SAB still talk of Heineken “stealing” Amstel. In hindsight, it’s difficult to imagine why SAB took such offence. It is puzzling why it didn’t realise that South American-based BevCo taking a 15% stake in acquisition-obsessed SABMiller might trigger termination of the 40-year Amstel trademark agreement.

Hubris perhaps? Or just common or garden arrogance from SA’s long-term monopoly supplier of beer?

Back in 2007, SAB controlled a tad more than 98% of the local beer market. It had built Amstel into an attractive premium brand with a 9.7% share of the market and an extremely valuable 20% contribution to SAB operating profits.

Since the traumatic loss of Amstel — and despite Castle Lite’s success in claiming a chunk of Amstel’s share of the market — SAB has never got its overall market share much above 90%.

This, despite the fact that for many years Heineken seemed not to be too determined about making inroads into the local beer market.

In 2013, SAB’s Norman Adami boasted that his group had been able to reclaim much of the lost Amstel market share through the aggressive marketing of Castle Lite.

Heineken’s seeming half-hearted engagement with the local market was a cruel blow for local beer retailers, who had hoped its reclaiming of Amstel signalled the emergence of serious competition for the ruthlessly efficient SAB monopoly machine.

The Holland-based beer giant has never fully explained why it stuck to the three-way joint venture with Diageo and Namibia Breweries (in Brandhouse) long after it was evident it wasn’t working.

Brandhouse, which was set up in 2004, turned out to be extremely effective when it came to the distribution and marketing of high-margin spirits, but beer was another matter entirely. What a disappointment for all who had braced for an exciting beer war all the way back in 2007.

However, it now seems that while we were all distracted by the glitz of SABMiller’s dramatic global acquisition spree, leading ultimately to the $104bn acquisition of SABMiller by AB InBev, Heineken was upping its game in SA.

Seemingly from nowhere, the Dutch multinational beer group now has a 13% share of the local market.

SAB conceding unprecedented share

Analyst and long-term SAB-watcher, Chris Gilmour, describes it as a remarkable achievement: “It’s hard to imagine that the old SAB would have allowed anyone to take that sort of share,” says Gilmour, recalling the last time SAB had to fight off competition, which was from Louis Luyt and the Rembrandt group back in the early 1970s.

The first sign that Heineken was here to stay was its R3.5bn investment in the Sedibeng brewery.

When it started production in 2009, Sedibeng was one of the most technically-advanced breweries in the world. It was set up within the Brandhouse structure, with Heineken owning 75% and Diageo the remaining 25%.

The brewery had an initial capacity of 3m hectolitres (hl) and the first brands to roll off the production line were Windhoek, Amstel and Heineken, followed a year or so later by Guinness and Heineken’s Strongbow cider.

About an hour’s drive south of Johannesburg, in the easily accessible and well-serviced Midvaal municipality, the Sedibeng location is ideally suited to accommodate the company’s growth ambitions, says Heineken SA MD, Ruud van den Eijnden. He notes that the brewery could produce 7mhl.

The most significant indication that Heineken was determined to claim a bigger share of the SA beer market was the 2015 decision to withdraw from the Brandhouse arrangement, three years before it was due to expire.

Van den Eijnden won’t comment on what prompted the decision, or on the widely held view that Brandhouse didn’t work well for Heineken.

Under the new arrangement, Namibia Breweries picked up Diageo’s 25% stake in Sedibeng, and Heineken upped its stake in Namibia Breweries to 30%.

“Essentially Heineken SA was launched in April 2016,” says Van den Eijnden. “We had to build a sales force and take on a new team of recruits.”

The company, which employs 900, has a top management team split evenly between South Africans and expats.

The plan is to increase the local element. Van den Eijnden says strong investment will continue in the coming years as the world’s number two beer group (up from number three, after SABMiller was folded into AB InBev in October 2016) consolidates its position in the SA market.

Impression before profit

The hefty investment commitment means Heineken SA is currently not making profit, but it certainly is making an impression on local beer drinkers — and cider drinkers.

Strongbow, the world’s number one cider brand, has helped Heineken secure a 9% share of the local market.

The beer groups guard market-share data closely, but it seems that by 2014 SAB’s beer market share had slipped back below the critical 90% level. Heineken SA claims it has grabbed about 1.5 three percentage points of the market in the past year, taking it to about 13%.

Recently released half-year results from Heineken referred to the strong beer and cider showing in SA, with the Heineken brand recording double-digit volume increases.

“Heineken is a very reliable good quality brand, which is really important in tough economic conditions,” says Gilmour.

But he adds that market share will be hotly contested, as both SAB and Heineken will fight hard for every single consumer.

In the past six months, SAB has applied aggressive pricing and hefty promotional pressure. AB InBev’s results for the three months to end-June revealed a remarkable 10.8% volume increase in SA.

“[This is] the highest beer volume growth by some measure seen in SA for a decade and more,” Marcel Regis, business unit president of SAB, said at the time the company’s results were released.

SABMiller zone president for Africa Ricardo Tadeu says the SA division has done extremely well and grown volumes well in the first year of integration.

He notes that while SAB had not added capacity since 2008, “we’re adding capacity now to ensure we will keep growing our categories”.

The local market has changed significantly since the Amstel incursion in 2007. SABMiller has been replaced by AB InBev, Heineken has emerged as a major competitor, and the range of beers available has ballooned, particularly in the premium segment.

And, as is the case in most other developed beer markets, craft offerings continue to be potential disrupters.

In this context, Heineken’s recent Soweto Gold launch represents an impressive marketing coup. It’s an extremely effective way of ensuring South Africans know it’s here to stay.

It has acquired the homegrown craft beer brewer from co-founders Ndumiso Madlala and Josef Schmid (who are remaining with the company) and will use it to secure its hard-fought position in SA, while also enhancing its portfolio of beers.

Source: Financial Mail