Beer war brewing

Amstel's owner launches campaign to knock SAB off its mainstream perch

The beer battle has been fought against SAB at the premium brand level. But now it is starting to look like war as Brandhouse, the owners of Amstel, take on the mainstream market, dominated by SAB's Castle, Carling Black Label and Hansa.

Brandhouse's latest campaign, launched last week, encourages bars to sell Amstel at R10 per 660ml bottles, excluding the returnable deposit.

But SAB's mainstream beers are still cheaper - Carling Black Label and Castle go for about R9.50 per 750ml bottle - and the new price is only recommended.

Amstel has 6.1% of the volumes of the total beer market, according to the latest figures from marketing research firm AC Nielsen.

This is up 0.9% from April last year, but still lower than the 9% market share Amstel had in 2007 when it was last brewed by SAB under licence.

The figures are for sales off-premises (the beer is not consumed on the premises), but this covers about 60% of the total beer market. SAB's sales are fairly evenly divided on and off premises.

Market share figures are crucial in this hotly contested market. As one SAB executive said: "This is our lunch and they've come to eat it."

The good news for both companies is that the total beer market is showing signs of revitalisation. In April this year, total beer volumes grew 5% compared with a year ago, according to AC Nielsen. Volumes from February to April this year are up 3.4% compared with the same period a year ago, while the market volumes for the year contracted 0.7% from a year ago.

Brandhouse volumes are growing significantly: in April this was up 38.5% from a year ago, sales for the three months to April were up 31% year-on-year.

SAB beer volumes grew only 1.2% year-on-year in April, while for the three months to April they were up 0.2%. But these are off a much higher base than Brandhouse's.

SAB's own figures, however, show higher numbers.

Brandhouse now has 13.5% of the volumes (including Amstel, Heineken and Windhoek) of the total beer market compared with 10.2% in April a year ago.

The boundaries between premium and mainstream beer are self-imposed. Premium beer generally sells at a 10% to 12% premium to mainstream beer. It sells in green bottles as opposed to brown and is marketed as an aspirational product.

Brandhouse, a joint venture between Heineken, Namibian Breweries and Diageo, was effectively created to take on the formidable SAB operation in SA. It has, to date, sold only premium beers.

Premium beer has been the fastest-growing market over the past few years, while the mainstream market has stagnated. Yet 80% of all beers drunk in SA are mainstream.

Brandhouse plans to make Amstel more accessible while retaining its premium position. Absa Investments analyst Chris Gilmour says Brandhouse is taking a premium beer and making it mainstream. "It's a sheep in wolf's clothing".

Julian Wentzel, head of research at Macquarie First South Securities, says: "My sense is they're bringing Amstel mainstream and positioning Heineken as the premium offering. What they're hoping to do is to get people to trade up."

Analysts say a price war is on, though SAB and Brandhouse deny this strenuously.

Amstel Lager has launched a national advertising campaign, labelled Ask Why, to make consumers aware of Brandhouse's recommended R10 price tag for Amstel sold in 660ml returnable bottles at taverns.

SAB says this could lead to pressure on smaller retailers who have to sell at a lower price, and has anti-competitive implications because these smaller operators may have to close shop because their margins will be eroded.

"Based on our broad assumptions, retailers would have to sell 15% more Amstel to offset the R60-million decline in absolute retail gross profit which is based on a universe of 50000 taverns and equates to R1200 per tavern," Wentzel said.

He questioned whether Amstel's volume momentum was waning, and whether the repricing was a tactic to win market share or the start of a price war.

"In the short term the consumer wins; however, in the longer term the erosion of the retail profit pool will ultimately impact on pricing and availability," he said.

Wentzel sees problems in repositioning Amstel as a mainstream offering. For 15 years its been positioned as a premium beer and he questions what the reduction in price does to the brand. "Do you capture enough customers to justify this bold move?"

Gilmour, however, says that if retailers don't make the money they need from the product, they'll sell an alternative.

Female drinkers

Women in SA are drinking cider as well as beer, wine, spirit coolers, sparkling wine and spirits.

Among the popular SAB flavoured alcoholic beveragesare Redd's Dry and Brutal Fruit, and there's a following for Sarita, Skelters Straight and Blakes & Doyle.

SAB executive director for strategy and business support Harald Harvey says that in beers all the "power brands" are particularly popular, especially Carling Black Label, Hansa Pilsener, Castle Lager, Castle Lite and premium beers.

SAB and draught

SAB is rolling out draught (tap) beer across all of its "power brands" - Carling Black Label, Castle Lite, Castle Lager and Hansa Pilsener. Draught accounts for only 0.8% of SAB volumes, but draught sales are growing by about 50% a year. Castle Lager and Hansa Pilsener have been available in draught for some time.

Castle lite and MC Hammer

Rapper MC Hammer has been chosen to star in the follow-up commercial to Castle Lite's Vanilla Ice advert. The TV ad also stars 7de Laan's Sekoati Tsubane, who appeared in the Vanilla Ice commercial. It was filmed at the Rosebank Hotel in Johannesburg, and is due to be released next week.