New booze bomb hits SAB

Beer giant faces fresh Competition Commission battle over sorghum beer

THE fight for the umqombothi market turned dirty this week as Daigeo’s sorghum beer arm, United National Breweries (UNB) lodged a complaint of “uncompetitive conduct” against beer behemoth SABMiller at the Competition Commission.

This represents the latest battle ground for SABMiller’s local business and Diageo as they slug it out for the parched throats of South Africa’s low-income earners.

This new complaint comes days after SABMiller’s local arm, SA Breweries, defended itself at the Competition Tribunal over claims of “anti-competitive” conduct in how it picked an elite group of 14 companies to distribute its products in rural areas. SA Breweries accounts for nearly 90% of the beer market through brands like Castle and Hansa, but is a small player in the umqombothi market.

Daigeo’s UNB is the country’s biggest brewer of traditional beer through its Chibuku beer. But it accuses SAB’s subsidiary, Alliance Beverages, of muscling Chibuku off the shelves of a wholesaler in Mahikeng, North West, and replacing it with its own product, Eyethu.

Documents seen by Business Times state SABMiller “purchased all the stock of UNB and replaced the purchased product with their own product”. UNB accuses SABMiller of “predatory pricing”, “abuse of dominance” and “springboarding” off the success of the Chibuku brand in the community.

The stakes are high in the sorghum beer battle. Lower-income earners whose purchasing power has been hit by transport costs, electricity price hikes and rising unemployment are opting for cheaper products such as sorghum beer, which is based on traditional African recipes.

Keen to tap this market, London-based premium drinks company Diageo, which own brands such as Johnnie Walker, Baileys and Guinness, bought 50% of UNB in June.

SAB largely exited the South African sorghum beer market more than a decade ago when it sold its subsidiary, Traditional Beer Investments, to UNB.

But SABMiller still produces sorghum beer in other African countries. While UNB holds the licence for Chibuku in South Africa, SAB holds the licence in the rest of the continent.

The company last year announced plans to roll out the brand in six more countries, bringing the total to 10. But SABMiller is not allowed to use the brand in South Africa.

Instead, SAB’s subsidiary, Alliance Beverages, brews its products across the border in Botswana, from where Eyethu is being imported to compete with UNB’s Chibuku and other brands in South Africa.

“Given the fact that Eyethu is produced in Botswana and accordingly incurs certain import duties and VAT, and taking into account that buying up all of the Chibuku product would have to be added to the costs, it is suspicious that Eyethu was able to be sold at a price lower [than] that of Chibuku,” said UNB’s complaint.

SAB said it was not aware that the Competition Commission had been approached. “As a new entrant into the market we aim to price competitively,” said a spokesman.

It is suspicious that Eyethu was able to be sold at a price lower [than] that of Chibuku

The company is no stranger to the competition authorities. Last month, SA Breweries CEO Norman Adami appeared before a Competition Tribunal in a case over discounts to “exclusive distributors” that the complainants claim are unfair to smaller distributors trying to make a living.

The tribunal this week heard final arguments in a case billed as a David vs Goliath battle that has been going on for nine years.

Sunday Times reported last month that SAB provided discounts to an elite group of 14 distributors selected by the brewer to stock its commercial products including Castle, Hansa and Black Label.

Nico Pitsiladis, CEO of independent distributor Big Daddy’s, said that smaller distributors had to buy beer and other products from SAB at full price. His company couldn’t make a profit margin, he claimed.

The tribunal is still considering the evidence and the result is pending.

SA Breweries contributes 17% of SABMiller’s revenue, quite a bit more than the 11% it rakes in from the rest of Africa.