AB InBev goes big to win Africa’s beer wars
A woman serves a litre bottle of AB Inbev’s Carling Black Label beer at a bar in Cape Town. The larger bottles are part of a plan by the world’s biggest brewer to lure price-conscious South Africans to its mid-market beers. SITTING outside the ramshackle Vimba Tavern in Johannesburg’s Alexandra township, Patrick Mashego swigs from a one-litre bottle of Carling Black Label, South Africa’s most popular beer.
Rolled out by AB InBev across the country this year, the larger bottles are part of a plan by the world’s biggest brewer to lure price-conscious South Africans to its mid-market beers and away from bargain rivals or home brews.
AB InBev’s move marks a departure from its typical playbook of increasing margins and profits principally through higher prices and rigorous cost control, tactics honed through its close association with private equity firm 3G Capital.
It is also the clearest sign yet of how AB InBev aims to conquer the rest of Africa after getting a major foothold on the continent by buying its biggest global rival SABMiller in 2016.
On a continent where the average person drinks 10 litres of beer a year – compared with 75 litres in the US and 66 litres in Brazil – establishing its premium brands and selling high volumes of mid-tier beers will be key, as will be breaking into countries dominated by other brewers.
AB InBev is trying to protect and expand its mid-tier brands with the help of discounting and promotions as they will be its workhorses during the time it takes its premium international lagers Budweiser, Stella Artois and Corona to gain market share.
But because AB InBev already has a range of premium beers for the high end of the South African market, it is also freer than SABMiller to push brands such as Carling and Castle deeper into the mainstream market.
At the Vimba Tavern, Mashego, 33, who spends most of his day scouting for recyclable rubbish to make a living, seems sold on AB InBev’s strategy. At R19 for a one-litre bottle, Mashego is paying about 20 percent more than for the 750ml bottles, but gets a third more beer.
SABMiller’s African presence was considered the main prize in AB InBev’s $107 billion (R1.36 trillion) acquisition of the world’s second biggest brewer – given the potential for growth on the continent as beer sales in other regions stagnate.
Bernstein analysts estimate the African beer market was worth $10.8bn of net revenue in 2016, or 7 percent of the global total, and they see it as the world’s most attractive region for long-term volume and profit growth. When AB InBev bought SABMiller, it cited forecasts that beer sales in Africa would grow by nearly three times the global rate between 2014 and 2025. About a fifth of the industry’s revenue in Africa, and a quarter of the profits, come from South Africa.
As part of its new strategy, AB InBev is reinforcing its volume play with more frequent discounting for Carling and another local favourite, Castle, retailers say.
At the Zio liquor store in Sasolburg, 80km south of Johannesburg, shoppers pushed trolleys laden with Castle on promotion last month for Freedom Day celebrations to mark South Africa’s first post-apartheid elections in April 1994.
“It’s a steal,” said one shopper in the mining town as he picked up an 18-pack next to a sign saying: “Buy 12 and get 6 extra free.”
Even though AB InBev controls more than three-quarters of the South African market, according to Euromonitor International, liquor store owners say promotions have become more common than under SABMiller.
Promotions were most intense towards the end of 2017, another liquor store owner said.
“There were deals almost on a weekly basis… crazy stuff,” said the trader in Vanderbijlpark near Sasolburg, adding that AB InBev appeared to be in “full-on war” with its closest rival Heineken in the run-up to Christmas.
For AB InBev though, the plan it has adopted in South Africa – varied bottle sizes and packs coupled with regular discounting, as well as the promotion of its premium beers – can serve as a blueprint for the rest of the continent. – Reuters