Sasha Planting
Though beer markets in China and South America are primed for growth, it is Africa, says SABMiller CEO Graham Mackay, whose organic growth is likely to outperform that of the group.
Earnings in Latin America and Europe may have grown faster but SABMiller’s profits on the continent have grown steadily. “High acquisition activity drove growth in Europe and Latin America. Africa has been the unsung hero of the past decade,” Mackay said, speaking at a recent presentation.
“In percentage terms its GDP growth has outperformed the rest of the world — off a small base — and it is something that is not widely recognised.”
As competitors like Diageo and Heineken became alert to the opportunities in Africa, SABMiller realised it needed to be more competitive.
“We have run a lean business in Africa,” said SABMiller Africa MD Mark Bowman at the same presentation. “But we needed to increase capacity.”
The company has invested US740m in Africa over the past two years, outstripping any other regional investment. This figure will drop to $200m/year from the financial year beginning April.
It has commissioned breweries in Angola (with a second to be commissioned this year), Southern Sudan, northern Mozambique and southern Tanzania.
Breweries in Africa are smaller than average, and are built specifically to overcome poor road logistics and bring SABMiller products closer to its markets.
Bowman admits some investments, while strategic, are risky. “We are the only formal business in Southern Sudan, which is a semi-autonomous region.”
The agreement, he says, was not drawn up on paper but sealed with the slaughter of a cow on the land. Business investment is so rare in the region that SABMiller assisted the authorities with the development of an investment code.
The brewer also bought the resuscitated Port Harcourt-based Pabod Breweries, which it views as a springboard into Nigeria, Africa’s second-largest beer market. Other acquisitions include the Coca-Cola business in Zambia, water businesses in Ethiopia, Ghana and Nigeria, and the Maheu nonalcoholic maize drink in Zambia.
The model for Africa is different. The countries are small and consumers are relatively poor. “Our markets in Africa are subscale,” says Bowman. “Soft drinks and water allow us to bulk up our business in a way that makes sense.”
Companies supplying drinking water in Africa are small and highly fragmented. But the market has been growing at a compounded annual rate of 17,5% since 2001. “Our water business will grow in double digits over the next 15 years,” says Bowman.
SABMiller’s strategy in Africa also takes into account the relative poverty of the population. It is estimated that 315m Africans live on less than $1/day — roughly the cost of a bottle of beer. This means popular brands like SABMiller’s Peroni and Miller Genuine Draft are beyond the reach of vast swathes of the population. As a result mainstream and affordable beer brand development is key. “We want to lower the price of beer by a half,” says Bowman. SABMiller is introducing local crops, like sorghum and cassava, into its beers to reduce input costs. In return for supporting local farmers, many governments have responded with lower excise duties on the beer. It is also actively promoting opaque beers, previously a neglected category.
In a market where beer is an accepted, but tiny, portion of the overall alcohol pot, SABMiller has recognised that there are many ways to skin the cat.
To better focus on this market, as well as that of Asia, Mackay has created separate reporting structures for Africa and Asia, where once there was one, operating out of Johannesburg. The Asia MD, Ari Mervis, is now based in Hong Kong.
From this month the group will report its figures for Africa and Asia separately. Currently the two regions contribute 15% of earnings before interest, tax, depreciation and amortisation. The majority of earnings come from Africa.
“When I put the two regions together 15 years ago, it was an uneasy marriage,” says Mackay. “At the time Asia’s volumes did not justify a standalone office.”
