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.
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.