MARKET: Follow the money (and the women)

03 April 2008 By db staff writer

d=”standfirst”>In a bid to increase its already dominant hold on Colombia’s beer market, SABMiller is targeting the female market and higher-income consumers, writes Euromonitor’s Catherine Mars

As one of the major beer markets in Latin America, and with beer sales forecast to grow by 17% over the next five years, Colombia is a market to watch. Per capita consumption is relatively low (43 litres in 2007, while on average consumers in Brazil and Mexico drank 55 litres each) but perceptions of beer, traditionally viewed as a downmarket choice, are improving.

Economic attractiveness
Colombia has opened up its economy considerably since the early 1990s. In May 2003 tax reforms on alcoholic drinks came into effect, resulting in a simplified system and reduced tax duties. As a result of these changes, the price differential between imported and domestic products decreased. This has had a positive effect on imported products and has resulted in reduced contraband sales.
In addition to an improved tax system, Colombia’s strengthening economy makes the country attractive to multinational brewers. The economy is growing strongly, boosted by improving levels of FDI. Colombia is increasingly being seen as a safe place to invest, with investors now looking at its regional attractiveness in terms of a skilled labour force, close links to the US (a free trade treaty was agreed by the Colombian and US governments in 2006, but has stalled in the US Congress, however, the United States’ President Bush has recently made the passing of a free trade agreement with Colombia one of his administration’s top priorities) and investor-friendly legislation.
In 2007, Colombia was ranked 66th out of 178 countries in the World Bank’s 2007 Ease of Doing Business Index. Only Chile and Peru were ranked higher in the region, at 33rd and 58th respectively.

Enter the giant
For beer giant SABMiller, entering the Colombian market has certainly been a positive experience. The company acquired Colombian brewer Bavaria in 2005 in order to strengthen its position in the dynamic Latin American market. In addition to attaining a near monopoly (the company had a 98% share of beer volumes in 2006), SABMiller has found Colombia to be a more valuable market than expected. In fact, Colombia is now one of the most profitable territories in the company’s portfolio after South Africa.
Since the acquisition, SABMiller has consolidated its position as the most important alcoholic drinks company in Colombia and developed its position through a two-pronged strategy: on the one hand the company has looked to increase consumption among beer drinkers, while also looking for ways to broaden its consumer base. In addition to introducing more efficient distribution methods, the company has increased the penetration of refrigeration in the vast number of small family-run operations. SABMiller has also revamped its brand portfolio and embarked on marketing campaigns to target higher-income consumers (who traditionally stigmatised beer drinking), as well as non-traditional beer drinkers (particularly women). One challenge facing all brewers in Colombia is how to attract female consumers. Historically, beer has been the preserve of men, consumed in downmarket male-dominated pubs with marketing typically consisting of posters featuring women in skimpy bikinis – a sure-fire way to alienate 52% of the legal drinking age population.
SABMiller has invested significant resources in changing the brand image of Club Colombia, Poker, Pilsen and Costeñita, as part of the overall strategy to reorganise its portfolio and reposition its products as premium alcoholic drinks. This strategy is also aimed at increasing the appeal of its products to younger consumers that prefer other alcoholic (particularly long) drinks and non-alcoholic drinks to beer. It appears the company has been successful in its quest to develop the beer category and take market share away from spirits and other alcoholic beverages. Between 2002 and 2007, beer volumes grew by 9% (673 million litres), while spirits volumes were down by 1% (7m litres).
Additionally, recognising the importance of attracting female consumers, SABMiller launched Redd’s, a malt-based RTD, in Colombia in late 2007. Designed to appeal to women, Redd’s features a lighter flavour than beer and is sold in packs of five or 10 bottles, rather than the heavier six, 12 or 24 packs sold to men. Moreover, the five and 10 packs are shaped like a woman’s handbag. The company appears to be following a strategy previously used in the Russian market where the Redd’s brand is also specifically targeted at young women.

New categories
Not willing to rest on its laurels, SABMiller has apparently been closely following the privatisation process of local spirits companies in Colombia. According to reports, the company has been in talks with state-owned Industria Licorera de Caldas, the second largest spirits manufacturer in Colombia with a 15% share of spirits volumes in 2006. The state-owned company produces a renowned rum, Ron Viejo De Caldas. While rum suffers from an old-fashioned image and is perceived as being too traditional for younger consumers in many South American countries, including Colombia, SABMiller may be looking to revamp the brand, in much the same way as the traditional beer products in the Bavaria portfolio have been repositioned.
SABMiller is not the only multinational brewer to recognise the potential of the Colombian market. With imported beers enjoying a surge in popularity, Anheuser-Busch launched Budweiser in the Colombian market in February 2006, followed by Bud Light in early 2007. As SABMiller’s Aguila Light (which accounts for 3% of the market by total volume) is the only other light beer available in Colombia, Anheuser-Busch’s strategy of targeting an underdeveloped category might well help the company to carve a niche for itself in the SABMiller-dominated market. Companies hoping to gain a foothold in the Colombian market would do well to follow this lead. Although sales of stout, dark beer, low- and non-alcohol beers are miniscule in Colombia, these are categories in which SABMiller is not active.
However, given the sheer dominance of SABMiller, recent activities to boost sales and the possibility that the company will enter new categories such as spirits, it is difficult to see how any competitor could successfully challenge the giant’s position.
Even InBev, the market leader in Latin American beer – with a 34% share of total volume sales, due to its strength in Argentina, Bolivia, Brazil and Uruguay – is unlikely to take on SABMiller in the Colombian market.

• Catherine Mars is an alcoholic drinks analyst at Euromonitor International