SAB suggests retailers raise price of rival's Amstel

The Heineken-Diageo-Namibian Breweries joint venture Tuesday circulated an SAB leaflet urging township retailers to sell 660ml Amstel bottles for more than the recommended R10. SAB recommends R9 for a 750ml Carling Black Label and R9.50 for a 660ml Castle Lite.

"Selling Amstel at R10 means you make less money on every Amstel you sell. This could mean A LOT LESS PROFIT for you this year," the pamphlet says.

Vying for market share

Amstel had a total market share of 9% in 2007 when it was last brewed by SAB under licence. It stood at 6.4% in March.

"It's in SAB's interest for that price to stay up and for Brandhouse for the price to come down. If they can detect anything that is a sign of SAB trying to keep the prices up, they're going to react vigorously," said Chris Gilmour, an analyst at Absa.

SAB said the pamphlet was its own, but that it worked with retailers to help them understand their cash flow. "SAB is in no way setting a price for Amstel. Retailers determine their own price. What we have done is to show retailers how a price point affects their margins," strategy director Harald Harvey said.

Of SA's annual 26-million hectolitres beer market, 80% is made up of the Carling-dominated mainstream market. While that market grew just 2.2% in March, the premium market grew almost 19%. Amstel and Castle Lite are vying for throats in this segment and ACNielsen figures show that in March, Amstel had a 29.4% share and Castle Lite had 29.1%.

Affordable alternative

Still, by pricing itself low - at R10, down from the R11.50 it charged for the 750ml bottle it imported until February - Amstel punts itself as an affordable premium alternative to Carling.

"Amstel's worth R10," Brandhouse marketing director Gavin Pike said. "Consumers will still choose Amstel at that premium to mainstream beer and other premium offerings."

Strategy in question

Still, some question the strategy. Selling Amstel at R10 gives traders a R1.50 margin, less than the R2.50 they get from selling Castle Lite at R9.50, estimates Julian Wentzel, head of research at Macquarie First South Securities. For traders to make more the market would have to incrementally grow, rather than Brandhouse simply taking volume from SAB. While brandhouse seeks to incrementally raise its market share, it will in the process cut the overall profit pool for traders, Wentzel said.

"I don't understand why Brandhouse would want to launch a price war and in particular where the economics are negative for their retailers," he said.

Pike maintained it was better for the retailer.

"I can't comment on sums. There is more margin in it for the trade. It's not a function of increased volume," he said.

Source: Business Day