22 Jun 2012 SABMiller barrels ahead in Africa
Robust economic growth, urbanisation and consumers aspiring to the better things in life point towards the African dream at last being realised. For brewers this combination is creating a dream market just starting to realise its huge potential, notes a new Financial Mail report. SABMiller, for example, recorded volume growth of 12%/year over the past five years in Africa. And though there has already been rapid economic growth , the continent’s beer market still has plenty of room to grow, accounting for just 4% of global beer volumes excluding SA. Africa is home to 15% of the world’s population.
Sanford C Bernstein analyst Trevor Stirling says per capita beer consumption of 7l/year in Africa is way below potential. It is one of the lowest levels in the world and compares with a global annual per capita average of about 35l and 63l in SA, which ranks 29th in terms of per capita consumption.
“Growing Africa’s per capita beer consumption to 35l is not out of reach,” says Mark Bowman, SABMiller’s MD for Africa (pictured). “Alcohol consumption per capita in Africa is already much the same as it is anywhere in the world but 75%-80% of it is in the form of illicit or home brews.”
Most African consumers aspire to move to branded products but beer is expensive for most of them, continues Bowman. He says the price of beer averages about US$1 for a 500ml serving, which is equal to three to five hours’ earnings for the average African worker, compared to an average of 12 minutes in Europe. “We believe the cost per serving in Africa will over time fall to about 20 minutes’ earnings,” he says.
Working towards this, a key part of SABMiller’s strategy is to make beer more affordable by keeping price increases below the inflation rate. “We have applied this model in SA with great success for 25 years,” says Bowman.
SABMiller and three other global brewers – Heineken, Castel and Diageo – have through acquisitions and greenfield developments carved dominant positions for themselves in Africa. Notably absent in Africa, or with only minor exposures, are the world’s largest brewer, Anheuser Busch InBev (ABI), and fourth-ranked Carlsberg.
The four leading players in Africa are likely to remain unchallenged, believes Yasmina Serghini-Douvin, a senior analyst at Moody’s. “Barriers to entry for brewers are so high that even a global giant such as ABI may find it difficult to secure a strong position,” she says.
Further highlighting the powerful position of the four big players, Stirling estimates that they account for a combined 90% of Africa’s annual beer revenue of $10,9bn. Of the total, he estimates SA represents $3,3bn, of which SABMiller generates almost 90%.
SABMiller has breweries in 16 African countries in addition to SA, a position greatly strengthened by an alliance with family-controlled French liquor firm Castel, which operates in another 22 countries. The alliance is market leader in 30 of the 38 countries, says Bowman.
Forged in 2001, the alliance is cemented by cross-holdings, SABMiller having a 20% stake in Castel’s African operations and Castel having a 38% stake in SABMiller’s African operations outside SA. “We don’t compete, we collaborate in Africa,” says Bowman. SABMiller has a pre-emptive right to acquire Castel’s Africa operations should it wish to sell. Stirling puts the value of such a deal at over $8bn.
Benefits of the alliance were seen in an agreement in January under which operational management of businesses in Angola was transferred to Castel and of those in Nigeria to SABMiller. “They are bigger in Angola and we are bigger in Nigeria,” says Bowman.
For SABMiller, Nigeria presents a major growth opportunity. Accounting for 15% of Africa’s beer market by volume, Nigeria is second to SA (27%) but has per capita consumption only a sixth of SA’s. But it is a tough market to crack.
SABMiller is taking on Heineken, which through 54%-owned Nigerian Breweries has a 69% market share, and Diageo, which through 54%-owned Guinness Nigeria has a 28% share.
SABMiller first entered Nigeria in 2008 when it acquired a small brewery. “It enabled us to learn the ropes in Nigeria,” says Bowman.
The brewer’s first big push will begin when a new $100m brewery is completed in August. The brewery has a capacity of 0,5mhl/year – equal to 3% of Nigeria’s beer market – and will, among other brands, produce Castle Milk Stout, an alternative to Guinness stout, and Eagle, a low-price beer that has proved to be a winner in Uganda and Zambia.
Also ensuring strong rivalry in Africa is high profitability. This is reflected in SABMiller’s results in its year to March, when it reported revenue of $3,68bn from its non-SA African operations and earnings before interest, tax, depreciation and amortisation (Ebitda) of $743m. This represented an Ebitda margin of 20,2%, second only to its 26,1% margin in Latin America and ahead of margins in SA (20,1%), North America (14,4%), Europe (15,3%) and Asia (9,1%).
The potential to increase margins in Africa is also notable. This should come from rising volumes and a changing product mix as consumers’ incomes rise and they shift towards higher-priced mainstream and premium beer brands. A positive mix change is already evident in, for example, Castle Lager volume, which has grown at an average of 30%/year over SABMiller’s past three financial years.
Bowman concedes that the battle for Africa’s beer market is hotting up. “Competition is more intense than it was in the start-up era,” says Bowman. But he adds: “There is more than enough space for everyone to grow.”
Source: Financial Mail