The Beer Industry in Africa

Africa presents an untapped market in the beer industry, however new breweries face significant barriers to entry. Strong geographic markets exist due to collusion between firms across different countries/regions. The large beer producers divide and allocate regional markets, allowing them to maintain dominance in individual countries.
Only four leading players exist in Africa—Heineken, Castel, Diageo, and SABMiller. (Noticeably absent is AB Inbev, who will finally gain access to this market through their recent acquisition of SABMiller.) Together they account for 90% of Africa’s beer revenue, and barriers to entry for brewers are extremely high.

SABMiller Key Alliances

An alliance through crossholdings between Castel and SABMiller solidifies their market control. SABMilller has a 20% stake in Castel, and Castel has a 38% stake in SABMiller. Mark Bowman, market director for SABMiller, stated, “We don’t compete, we collaborate.” Bowman points out that although there are antitrust laws at the national level, there are none covering the continent. He concludes, “I don’t see what the problem is.” The strategic alliance ensures that SABMiller and Castel do not compete against each other in designated territories, and allows SABMiller the right to acquire Castel’s Africa operations if it decides to sell. Recently there have been investigations into the conduct of dominant beer producers, as subsidiaries of SABMiller have been entering into agreements with outlet owners that ensure exclusion of smaller breweries. The regional market allocation between large firms has limited competition and prevented new entry.

http://www.competition.org.za/review/2014/11/7/the-beer-industry-in-africa-a-case-of-carving-out-geographic-markets

7 thoughts on “The Beer Industry in Africa

  1. What does the political environment look like for the African beer industry? Do many countries maintain similar Anti-Trust laws that the United States employ?

    • Piggy backing off this idea a bit, if the issue is a lack of continent level anti-trust law/enforcement, why do we not see this issue in South America or Europe? Does the EU have anti-trust jurisdiction? or is it that the markets are potentially large enough that significant barriers to entry are worth overcoming for potential competitors?

      • That’s a good point. The European Union has a Community Law, allowing it to regulate market trade between the member states and help better prevent continent wide collusion. Another issue could be the political instability present in many African countries, leading to a less regulated market overall.

  2. I found another article that touches on the subject of beer in Africa. It focusses on SABMiller’s success and growth in Africa. In fact, the article includes a cart that shows where SABMiller had its most growth in profits from 2012-2013. In this chart we see that SABMiller had its largest increase in profit in Africa, charting 14% gains. This shows how the market in Africa has grown recently and the looks to continue its growth. We can see this assumption from the fact that SABMiller entered a lot of these African countries in the 1990s, but are just now seeing the quick growth in profits.

    http://www.economist.com/news/business/21602999-long-established-african-firm-went-global-only-find-fastest-growing-market-was-its

    • While the beer market in Africa has recently experienced high growth, increased domestic criticism and economic downturn might cause destabilization. Local governments have voiced concerns over problems stemming from the growing beer market. One such concern is the fact that local sourcing of beer ingredients is threatening regional food security. Moreover, earlier this year, SABmiller slashed its growth forecast in Nigeria from 8% to 3% due to falling oil prices and the subsequent effect on the Nigerian economy.

      It will be interesting to see how the future plays out for SABmiller

      • While this is true, the drinking age population in Africa is on the rise. In a world where the majority of countries are growing old, Africa is one place that is still churning out a young workforce population. This population is far and away the target audience for these cheap mass produced beers. As this group gets larger and larger they will consume more beer and if SABmiller can have a strong presence as these young workers reach drinking age, then they will be tapping into one of the largest and fastest growing demand pools in the world. This makes me believe that this will end up being a successful move for SABmiller.

    • I came across an article today in the Wall Street Journal discussing Altria’s recent earnings release. The company experienced a 43% decline in third quarter earnings linked to their ownership and poor performance of SABMiller. The decline in earnings of $141 million, the Wall Street Journal notes, was a direct result from weakening foreign currency especially in the areas where SABMiller has a strong footprint (Africa and Latin America). It is interesting to see the macroeconomic forces playing a role and its effect on the beer industry in particular. I would be curious to know how SABMiller plans to counter weakening foreign currencies in order to normalize earnings in developing countries.

      http://www.wsj.com/articles/altria-revenue-grows-helped-by-market-share-gains-1446118042?alg=y

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