Troubleshooter

Finweek English Edition - - Companies & Markets - BRUCE WHIT­FIELD brucew@fin­week.co.za

THERE’S A NEW EN­ERGY at the Park Lane offices of SA Brew­eries Ltd in Jo­han­nes­burg, the South African sub­sidiary of global brewer SABMiller. Com­pe­ti­tion is com­ing and there’s a new guy in charge. Though Nor­man Adami isn’t en­tirely new he’s very much in charge and do­mes­tic an­a­lysts are cel­e­brat­ing his re­turn – which prom­ises to re­store some of the dis­ci­pline to the unit still strug­gling to over­come the loss of the Am­s­tel brew­ing con­tract two years ago.

Full-year re­sults to end-March 2009 will re­veal whether SA’s beer vol­umes are back to the Am­s­tel-era lev­els. SAB has done its best to sup­ple­ment vol­umes with the in­tro­duc­tion of new la­bels, in­clud­ing Hansa Marzen Gold and im­ports from other ter­ri­to­ries, such as Hun­gar­ian brew Dre­her and the newly ac­quired Dutch of­fer­ing Grolsch. How­ever, that’s un­likely to have been suf­fi­cient, es­pe­cially since cash-strapped con­sumers have been trad­ing down in favour of main­stream, lower mar­gin brands.

In a re­cent trad­ing up­date, par­ent SABMiller plc re­vealed its SA beer vol­umes grew a dis­ap­point­ing 1% in the third quar­ter, which in­cluded Christ­mas. Vol­umes for the year to end-March 2007 in­cluded

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Am­s­tel and were at 26,54m hec­tolitres. That vol­ume slipped slightly by March 2008 to 26,52m, while the group’s half-year re­sults to Novem­ber 2008 showed a slide of a fur­ther 1%, im­ply­ing full-year vol­umes to end-March could be frac­tion­ally lower.

The SA op­er­a­tion is also be­ing ham­pered by in­put costs that threaten to un­seat it from its po­si­tion as the Lon­don-listed group’s most prof­itable re­gion. In­put costs have shot up and, de­spite some price in­creases in re­cent months, mar­gins in SA are be­ing squeezed. Rand weak­ness in par­tic­u­lar is im­pact­ing the cost of ev­ery­thing, from bar­ley and maize to alu­minium and steel.

Adami has been around the block at SAB. His (re)ap­point­ment to run SAB Ltd in Oc­to­ber last year, af­ter quit­ting the group as head of its US op­er­a­tions for fam­ily rea­sons the year be­fore, in­di­cates how se­ri­ously the hold­ing com­pany is treat­ing the im­pend­ing com­ple­tion of global com­peti­tor Heineken’s first fa­cil­ity in this coun­try, at Sed­ibeng, south of Jo­han­nes­burg.

Adami ran the SA busi­ness be­tween 1994 and 2003 be­fore be­ing sent to the US to run the newly ac­quired Miller Brew­ing Com­pany. He was sub­se­quently given over­sight of Bavaria in Latin Amer­ica, as well as the South Amer­i­can busi­ness.

That ex­pe­ri­ence is likely to pro­vide a use­ful train­ing ground. It’s taught him a trick or two about be­ing the “also-ran” and gives him the tools to fight what’s ex­pected to be a de­ter­mined on­slaught by Heinken. That group in­tends brew­ing Am­s­tel in SA for the first time since it ter­mi­nated SAB’s li­cence to pro­duce the lager here. Since 2007 it’s been fully im­ported.

“This is a crit­i­cal junc­ture in the his­tory of the com­pany,” Adami says. “We have to be­come more ef­fi­cient and re­li­able,” he says. in ref­er­ence to var­i­ous stock short­ages that emerged in the SA mar­ket in 2006 and 2007. “We’ve iden­ti­fied the root causes and were able to elim­i­nate them in 2008.”

Heineken’s SA brew­ery is due for com­ple­tion this year. It said in Jan­uary it ex­pected its Sed­ibeng brew­ery to be ready by year-end 2009 and in time for the 2010 Soc­cer World Cup.

Pre­vi­ous at­tempts at un­seat­ing the vir­tual SAB mo­nop­oly – var­i­ously by the Ru­perts and also by Louis Luyt – failed two decades ago. Since then no­body has dared chal­lenge its dom­i­nance and SAB has been able to con­sol­i­date its grip on the do­mes­tic mar­ket, where it pro­duces more than 90% of all beer con­sumed in this coun­try.

The new Heineken brew­ery will have an ini­tial ca­pac­ity of 3m hec­tolitres. That’s enough to dent the dom­i­nant player’s al­ready lim­ited vol­ume growth.

“We need to prop­erly en­gage the new com­pet­i­tive threat. They must re­act to us – not the other way round,” says Adami. “They’ll want to change the rules but I’ve seen that movie be­fore.”

Been the un­der­dog be­fore… Nor­man Adami

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