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
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