Beer war now in ‘premium pass-arounds'

In SA's aspirational, growing middle-class market, this is a key product that both the entrenched incumbent and its deep-pocketed international rival are seeking to tap. In one corner of the ring is SAB with Castle Lite, sold in a green bottle to denote its premium nature. In the other corner is Brandhouse with Amstel, which it is producing at its new Sedibeng brewery south of Johannesburg.

This is not the first time SAB has fought competition on home soil. But it is the hardest fight yet. “This is probably the most important one SAB has had to deal with. They're up against a gigantic and effective global competitor in the form of Heineken,” says Chris Gilmour, an analyst at Absa investments.

It is early days yet. The beer bottle battle is just starting. Brandhouse — a joint venture between Heineken and UK-based Diageo, alongside Namibian Breweries — only started producing the 660ml “sharing pack” bottle last month.

But now that it is producing locally, Brandhouse can sell its beer in returnable bottles. And that is crucial.

Weapon of returns

“The returnable is a great weapon in the armoury, but Brandhouse couldn't use it until they had Sedibeng,” says Gilmour. Using bottles that can be returned for a deposit allows Brandhouse to pit Amstel head-to-head with SAB in a township market that is fast becoming more affluent.

The traditional market for returnables is for 750ml bottles of mainstream brands such as Castle and Carling Black Label. But the market is expanding upwards into the premium brands. “Things like the Peroni 660ml are seen as the ‘fashionable returnable',” Gilmour says.

In a stroke of irony, it is also a market that SAB largely created — with Amstel. In 1998 SAB began selling Amstel in large returnable bottles to the shebeen market. By 2007, when Heineken pulled Amstel from SAB, it was the largest premium brand at 2,4-million hectolitres and was growing at 26% a year.

Amstel left the market, but is now back. And SAB faces losing a market it created.

Premium market

“(SAB) started a whole new market of people who would take premium beer and pass around.

“Premium beer did tend to be in small bottles. They broke the mould. If Amstel's going to be purely returnables, then it may place Amstel at a big advantage,” Gilmour says.

Brandhouse MD Gerald Mahinda, a Diageo veteran and former CEO of Kenya-based East Africa Breweries, is enthusiastic about selling Amstel in 660ml bottles. “We believe there's a large opportunity for us within the 660ml market,” he says.

There is, but they face a much larger competitor that has serious advantages in the local market, such as distribution; and that entrenched many distributors' loyalty with a black economic empowerment scheme last year. Sedibeng's 3-million hectolitre capacity (being expanded to 4 million) is a drop in SAB's 28 million-plus capacity from its seven local breweries.

Alrode brewery in Alberton alone has capacity for 8,2-million hectolitres a year.

Castle Lite is now the biggest premium beer brand in SA. (SAB does not give figures.)

'Street fight'

SAB CEO Norman Adami welcomes the competition.

“We have entered a ‘street fight' that is indeed permanent,” he said this month. Adami said SAB could fight Heineken by pulling out different brands from parent company SABMiller's stable. Peroni should be able to out-style them ... Grolsch should be able to out-cred them ... Miller should be able to out-party them ... Pilsner Urquell should be able out discern them ... and Castle Lite should be able to out- refresh them,” Adami said.

Amstel, of course, has a range of variants outside SA and Heineken could introduce those to the South African market to fight the battles of style, credibility, discernment and refreshment. “We do have a whole array of brands we can bring into the market if the market develops,” Mahinda says.

It will be entertaining to grab a beer — or pass it around — and watch the fight unfold.

Source: Business Day