AB InBev set to brew global brands in SA

Anheuser-Busch InBev will begin producing some of its global brands, such as Stella Artois and Budweiser, in South Africa within two years, and will build sufficient production capacity to also supply the rest of the continent. Stella would be the only the global brand produced locally and exported to the rest of Africa.

Speaking at SABMiller's Sandton offices last week, Ricardo Tadeu, the zone president of Africa at AB InBev, said: "The only brand that we import is Corona. It's not economically viable for a company to have a great weight of imported brands, because of all the logistics. So we will all try to have our production done locally."

Corona is produced in Mexico and the company wants it to maintain that identity. "But it's the only exception; everything else will be locally reproduced."

One of the key decisions for AB InBev's purchase of SABMiller for $103-billion (about R1.3-trillion) was to export African beer brands to other markets in which it operates. The African distribution of the global brands will be from South Africa.

SAB recently took over the distribution of these brands, but they are still a small contribution to the group's local operations.

The group's mainstay South African brands are Carling Black Label, Castle and Flying Fish.

Over the next two years, the group intends to expand the presence of AB InBev's global brands on the continent.

Within 12 to 24 months Stella Artois will be produced in South Africa, although the group is still working out the business case.

AB InBev will also launch two production lines. It was recently reported that the group plans to invest between $150-million and $200-million on these lines within 12 months.

The company will also embark on cost-cutting initiatives.

Tadeu said the details of the production lines would be announced in the next two months.

"We are in the final phase of studies, so we can't give all the details about where we are going to be [or] the total investment," he said.

AB InBev 's 2016 annual report noted that beer volumes in South Africa had declined 5% as a result of a weak economy, while the company's premium brands, Castle Lite and Flying Fish, delivered solid volume growth.

South Africa is the largest African market for the group, contributing around 50% of its African revenue.

De Wet Schutte, an analyst at Avior Capital Markets, said SAB had been adding new multi-production capacity in South Africa over the past two years, and had been doing that before the AB InBev deal.

Right now, AB InBev's focus was to expand margins and so raise profitability to ease its debt burden, he said.

The consumer was under pressure and widespread trading down was expected to affect all AB InBev' s brands, he said.

"It typically means that you have to organise your brand portfolio a little bit and it does weigh on profitability in the short term, so it may require a change of strategy."

Schutte said the continent was not a good growth environment given its " weakening currencies, weakening consumer environment ".

"It has been very difficult for the last three years and it's difficult to see how that is going to improve in the short term.

"Ultimately, there is a positive growth story for Africa. There's a strong underlying rationale for investing in Africa.

"The reality is that it is quite difficult at the moment."

Tadeu remains confident about AB InBev 's prospects in Africa .

"We will have a great return in South Africa and volatility is part of any country, especially considering we are here for the long term and are confident that in this long term we will be very successful, so our time frame is always five years," said Tadeu.

"We prefer to be optimistic, because of the great brands, great company, great people and many opportunities.

"But we'll see."