Heineken shows signs of life in South Africa
Heineken Beverages, the South African unit of the Dutch brewing giant, is showing signs of recovery. Beer volumes grew in the third quarter of the financial year, and Savanna is going from strength to strength.
The local Heineken unit was created from the merger of Heineken South Africa, Remgro-owned Distell, and Namibia Breweries. This left Remgro with an 18.8% stake in Heineken Beverages.
Heineken Beverages has had a difficult start to life in South Africa, with its beer volumes coming under pressure from consumers turning away from its premium brands towards cheaper alternatives.
Remgro CEO Jannie Durand has routinely lamented the over-indexing of Heineken’s brands towards the premium end of the market.
Earlier this year, Heineken wrote down the value of the South African business by R10 billion as its performance struggled due to lower beer sales.
While Heineken’s premium brands, such as its namesake, Amstel, and Heineken Silver, allow it to have superior margins over competitors, they prevent the company from competing in the lower end of the market.
This is still dominated by South African Breweries (SAB) brands such as Carling Black Label and the Castle stable of brands.
SAB has also increasingly come after Heineken’s position as a market leader at the premium end of the market. After being bought by AB InBev in 2016, the company has been able to sell its global brands, Stella Artois and Corona.
In response, Heineken Beverages launched a new 650ml returnable bottle and will aim to unlock cost efficiencies through scale.
This, coupled with a steady decline in pricing pressures and an improvement in the economic environment, has seen a resurgence in Heineken’s beer volumes in South Africa.
In particular, Heineken, Windhoek and Amstel are growing strongly in South Africa and drove growth in beer volumes of over 20%.
As a result, the organic net revenue of Heineken Beverages grew in the low teens. Consolidated volume expanded in the low teens as we cycle last year’s integration.
While the beer portfolio remains central to Heineken’s business in South Africa, the main reason for the merger was to drive the growth of the beyond beer portfolio.
This portfolio is dominated by Savanna, Bernini, and Hunter’s, which are some of the strongest brands in South Africa.
Heineken viewed this segment of the business, in particular, as very attractive as it enables the Dutch giant to capitalise on future growth opportunities as beer consumption declines globally.
Dutch CEO Dolf van den Brink said the company is seeing strong momentum in sales of its Savanna brand and, encouragingly, its Bernini products.
The company also said it would increase investment in brands with the greatest long-term potential growth opportunities – singling out its South African brands, among others.
Savanna and ready-to-drink Bernini grew sales by double-digits, outperforming the market and cementing their places as dominant brands in the beyond-beer category.
These brands are one clear edge Heineken has over SAB in South Africa, with it set to benefit from a growing trend of alcohol consumers moving away from beer to ready-to-drink alternatives and ciders.
Euromonitor research shows that the ability to leverage its scale to grow the Savanna and Bernini brands should allow it to compete more aggressively with SAB across the board.
Euromonitor’s research shows that beer consumption is declining globally as populations age. If the same trend occurs in South Africa, then the beyond-beer category will become increasingly important to both SAB and Heineken.
SAB has recently refreshed its Brutal Fruit range and introduced Black Crown, a pre-mixed gin and tonic range, to compete in this category.
Its CEO, Richard Rivett-Carnac, previously ran Distell, and the company backs the expertise he gained from running the dominant player in the beyond beer category to grow its market share.
SAB has its own advantages. The 2016 merger of SAB and AB InBev created the world’s largest brewer, promising benefits from unprecedented scale.
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