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BEER / SOUTH AFRICA: Cape Beer

10 July 2007 By db staff writer

“standfirst”>Premium lagers, homebrew, unlicensed shebeens, brand rivalry, joint ventures, the World Cup… Euromonitor International’s Anne Nugent analyses current beer trends in South Africa

With a strengthening economy and higher disposable incomes across a wider mix of the population, the South African market has seen demand for value-added products grow at every level. According to Euromonitor International’s findings, sales of premium lager have increased well over threefold in the last five years for instance.

Amstel, the Heineken-owned brand which, until recently, was distributed by South African Breweries, is by far the biggest premium brand with around half of all premium lager sales. Other brands that have seen good growth include Castle and Pilsner Urquell, both of which are owned by SABMiller and were introduced into South Africa in 2002. Castle Lite is playing a key role in the overall brand’s success, targeting females as well as males.

Trading-up has also been a driver in mainstream beer in South Africa as consumers who hitherto opted for cheaper sorghum beer are now starting to switch to mainstream lagers. Key to this has been the emergence of the black middle class who are very image and status conscious. Unlike the typical consumer who may well buy a premium brand when out at a bar, but invariably the take-home option is a standard brand, the black consumer who can afford to is more likely to trade up both in the on- and off-trade.

There is also a trend towards polarisation in the South African beer market. Many sorghum drinkers are also looking at the other end of the scale to find even cheaper alternatives in the shape of homebrew beer. Homebrew, which is sold illegally, is made at home using malt as a base and tends to have a high alcohol content. Despite rapid economic growth, the unemployment rate remains high at around 25% of the economically active population and this is partly a result of shifts from labour intensive industries such as mining, quarrying and agriculture to finance, real estate and business services. As such many consumers are unable to benefit from the boom times.

Another feature of the South African market is the presence of unlicensed shebeens. These are informal establishments that are situated within settlements or townships, and which supply alcoholic beverages to the local community. Such is the scale of illegal sales through these unlicensed outlets that SABMiller has undertaken a R100 million (£7m) project in a bid to help legalise some of these and it will train 6,000 taverners a year over the next five years. This drive will increase SABMiller’s (and to a lesser extent other manufacturers) sales as they will be able to supply these newly licensed shebeens.

A joint effort
Such is the importance of the South African market that the company Brandhouse was formed through a joint venture of Diageo’s South African operation Guinness UDV, Heineken and Namibian Breweries in July 2004. This provides Heineken and Diageo with an effective 29% stake in Namibian Breweries. The purpose of the joint venture was to form a strong partnership in order to compete effectively against SABMiller’s strength in the region and to capitalise on this key growth market.

With demand for stout levelling out, and the need to a find way to maintain its premium positioning, Diageo has followed a similar strategy for Guinness in South Africa as it has done in the United Kingdom. It ended its production and distribution agreement with Namibia Breweries and switched to direct imports of Guinness into South Africa. South Africa is one of those few markets where there is a major local rival for stout in the shape of SABMiller’s Castle brand. Guinness is retailed at a premium to Castle as well as compared to premium lagers such as Amstel. Thus it is likely to still be cost effective to import into South Africa from the further afield Dublin brewery and maintain margin, while also protecting its premium credentials.

Meanwhile, with the successful Amstel brand, part of the Brandhouse portfolio since March this year, this should provide distribution opportunities across a range of the company’s premium offerings, which also includes spirits. That said, in the short term, it is not all plain sailing with the brand suffering shortages as it sets up import supplies from Europe. Heineken plans to have a local brewing presence within the next two years.

New entrants
SABMiller, meanwhile, is focusing on filling the gap Amstel has left and has been actively seeking to push consumers to its Hansa Marzen Gold brand while Amstel is visible by its absence on the shelf. It is also pushing other premium offerings from its portfolio including Peroni and Pilsner Urquell.

Looking ahead to new entrants to the market, Anheuser-Busch is the leading beer sponsor of the 2010 Fifa World Cup which is being held in South Africa, and in view of that, its key brands Budweiser, Bud Light and Michelob Ultra are expected to launch soon. Foster’s already recently entered the market serving to underline the opportunities brewers are seeing here.

Cider revival
Cider has seen a turnaround in fortune over the last few years, up by 40% since 2001 and sales are almost back on a par with its heyday in 2000. Key to its success, according to Euromonitor International’s findings, has been the premium positioned Savanna brand which, almost single-handedly, has revived cider’s fortunes and posted a volume increase of 75% in 2006 alone. Sales are now almost on a par with leading brand Hunters Dry. The Hunters range of brands had struggled in the market but in 2006, following a packaging revamp and a new advertising campaign, the brand finally began to reap rewards, with sales up by 10%.

With Distell the only player in the growing cider segment, Euromonitor International sees it as a logical step for major brewer and distributor South African Breweries to move into this segment. If it did, it would be most likely through distribution of a third-party brand such as Bulmers or perhaps even with the Magners brand which has seen phenomenal success in the Irish and UK markets.

South Africa – Euromonitor International’s facts and figures

The South African beer market is ranked 11th in the world in volume terms with sales of around 27.8 million hectolitres. It is the largest market within the African region, with the closest behind being the rapidly growing Nigerian market, which has grown by over 30% in the last five years.
South Africans consume around 56 litres per head of beer through legal channels, which is relatively low compared to mature markets such as the Netherlands, with around 75 litres per head, or the United Kingdom on 97 litres per head. However, taking into account the informal channel consumption, actual consumption would be much higher and it is therefore a key opportunity for major brewers in the future.
South Africa ranks in 16th place globally for premium lager which is in ascent, although as yet this accounts for less than a quarter of beer sales. Mainstream lager meanwhile accounts for 78% of sales.
Leading players in the beer market are the domestic player SABMiller; UB Group, present within sorghum beer; and Heineken.
Sales of dark beer, primarily sorghum, puts South Africa in 9th place globally but demand is in decline because of strong competition from homebrew.
Returnable bottles account for 80% of mainstream beer sales, and 60% of premium beer sales. SABMiller has used the returnable bottle concept to entrench itself in all sectors of the beer market. Its premium brands Castle Lite and Miller Genuine Draught (and until recently Amstel) are all available in returnable bottles, unlike any other manufacturer of premium beer. Returnable bottles are available in 750ml, 600ml and most recently in 330ml formats.