South Africa Food and Drink Report Q4 2009

A globally integrated economy that boasts a dynamic fast-moving consumer goods market, South Africa is an atypical sub-Saharan African market. It is this integration that is largely behind a forecast 2.2% GDP contraction in 2009. Despite the downturn, the country’s beer industry has been the centre of attention this quarter with big names like SABMiller and Heineken coming under the spotlight as discussed in BMI’s recently published South Africa Food & Drink Report for Q409.

Earlier in Q309, SABMiller announced it would sell 10% of its South African subsidiary, South African Breweries (SAB), to black investors to conform to South Africa’s Black Empowerment Initiative (BEI), which sets industry targets for equity ownership and is specifically aimed at affording greater control of Africa’s largest economy into the hands of the black majority. Valued at ZAR6bn (US$775), the deal would see the brewer issue new shares to its employees as well as black-owned retailers of its beer and soft drinks products (over 60% of SAB’s beer is currently sold in unlicensed bars). With a market share in excess of 90%, SAB is ideally placed to capitalise on BMI’s forecast that to 2013 alcoholic drinks value sales will increase by 33.5% and reach ZAR74.2bn. With the FIFA Football World Cup set to be hosted by the country in 2010, demand for beer is set to spike considerably as domestic consumers bump up consumption and around 500,000 foreign visitors are expected to flock in for the month-long tournament.

SABMiller’s landmark announcement followed Heineken’s saying that it was locked in negotiations to construct a barley-malting plant next to its brewery, set to open in H209. Heineken is entering South Africa in a 75:25 joint venture with UK-based alcoholics drinks major Diageo.

It is reported that from a strategic point of view, Heineken’s long-term prospects in South Africa were enhanced significantly by its possession to the brewing rights of the Amstel brand. The lager was brewed under license by SABMiller until 2007 and claimed around 9% of the formal beer market. Heineken’s Africa and Middle East business accounted for close to 12% of its revenue in FY08 – a proportion BMI believes the brewer should look to grow, particularly as sales volumes are pulled down in its core Western, Central and Eastern European markets. While divestment and cost-cutting are at the top of its agenda in a number of its European markets, growth opportunities are plentiful in Africa, which, somewhat ironically, is expected to be among the best performing beer regions in 2009.

The report believes that the World Cup and Heinken’s entry should kick back South Africa’s beer industry back into life following moderate stagnation over the past few years. The lack of a challenge provided to SABMiller has allowed the giant to focus its efforts internationally. We note that per capita beer consumption in South Africa has hovered around the 55-60 litre mark for some time now.