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South Africa Food and Drink Report Q3 2008
Business Monitor International, July 2008, Pages: 49
The South Africa Food Drink Report provides independent forecasts and competitive intelligence on South Africa's food and drink industry.
South Africa’s alcoholic drinks industry has been in the spotlight this quarter, as discussed in BMI’s recently published South Africa Food & Drink Report for Q308. In March Dutch brewer Heineken announced its plans to launch two joint ventures with the UK’s Diageo in the South African market. Under the first agreements, Heineken and Diageo are building a brewery in the Gauteng province close to Johannesburg, at an estimated cost of ZAR3bn (US$375mn). Heineken will own 75%, while Diageo will hold the remaining stake, and it will brew a range of Heineken and Diageo brands including Heineken and Amstel, the most popular beer in South Africa. According to Heineken's Regional President for Africa and Middle East, Tom de Man, the location of the brewery was based not just on geography and infrastructure, but also the social and economic issues in the area, saying that this region will benefit enormously from a new commercial investment, as the company looks to also build its reputation as a socially responsible company.
In the second investment, Heineken and Diageo will also partner with Namibia Breweries to combine their beer, cider and ready-to-drink businesses in South Africa and replace their old cost-sharing venture. Through these investments, Heineken and Diageo are positioning themselves to take on market leader SABMiller, giving the Anglo-South African company a run for its money.
However, it doesn’t look like SABMiller will take this challenge lying down, as the company has announced its own investment plans. In April SABMiller announced that it is looking to more than double its marketing spending in Africa over the next four to five years, as it seeks to significantly increase operations across the African continent. These investments include the construction of new greenfield breweries, the expansion of existing operations, and switching containers to returnable glass bottles. The company currently manages operations in 14 countries across the continent, although the
majority of its revenue is still generated in South Africa. However, it appears that the company is now looking to further diversify its operations and drive demand in other emerging markets, saying that the majority of this spending will target larger markets such as Tanzania and other regional countries close to South Africa.
Although South Africa has one of the most sophisticated business environments in sub-Saharan Africa, representing a key component of its status as a regional economic powerhouse, a weakened power sector has recently dented South Africa's image as a top investment destination and could limit FDI inflows going forward. Furthermore, high levels of crime and an inflexible labour market will continue to constitute significant structural problems that will blemish the attractiveness of the country's business environment over the longer term. This is true not only for heavy industries, but also for the food and drink sector, which is dependent on investments in improving production facilities in order to sustain growth.
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