Argentinean brewers do battle with foreign investors
An unstable economy, an energy crisis and the seemingly unending nightmare of recession have created an Argentinean market ripe for foreign investors to move in on local industry. And regardless of the uncertainties of other markets, brewers in Argentina are battling national and international competitors for an invaluable market share of one of the only industries that has maintained some stability, beer.
Relying on their past experiences from the early 1990s' recession, companies such as Quilmes, Compania Cerveceria Unidas, AmBev and Casa Isenbeck are increasing production efforts in Argentina in a bid to come out ahead.
Ambev, with the recent purchase of a Paraguayan brewer under its belt and interest in further development across the border, is teeming with excitement at the prospect of taking a larger share of yet another South American market.
According to comments from AmBev's financial director, Felipe Dutra, published in the Brazilian national newspaper O Globo, AmBev has invested US$200m in production efforts in Argentina.
In addition to actual beer production in the country, AmBev is also successfully dominating the bottling industry.
Early last year, it opened a packaging company now suspected of monopolising the local market and causing staff cuts. On the back of this, the company is moving to increase production of beer by over 2m hectolitres, confident that the 4% market share gained last year was not a fluke.
Compania Cervecera Brahma Argentina, now 70% owned by AmBev due to the merger of Antartica and Brahma, just recently increased distribution efforts in the provinces of Cordoba and Buenos Aires through their Zarate-based brewing facility.
In addition to economic difficulties, local companies are faced with increasing adversity as a result of multinational expansion within
Argentina. One such possible move, which is likely to stimulate further interest in the country, is AmBev's interest in Quilmes International (Bermuda) Ltd., a prominent mercosur-member country company. (Mercosur is the South American economic cooperation zone moving towards a common market.)
Ambev has made its interests in Quilmes known but reports in Argentinean newspapers suggest that Quilmes is not willing to succumb to the "AmBev headache", as one Brazilian columnist described the reality of the Antartica/Brahma merger - after many gruelling months of deliberations.
AmBev can either buy into Quilmes operations or create an association with the company to further its international expansion. But by paying out dividends to its shareholders earlier this month, Quilmes has bolstered the position of its shares, perhaps in preparation of an aggressive move by AmBev.
Presently AmBev, it is second in line only to Quilmes as the market leader, whose operations are controlled by Heineken International Beer B.V. (15%) and Quilmes Industrial (Quinsa) S.A., a holding company out of Luxemburg (85%). With operations in Argentina, Bolivia, Chile, Paraguay and Uruguay, the Quilmes brand is a market leader throughout South America.
Current trends in Argentinean beer consumption suggest a possible 10% decrease for the year, according to Antonio Fovakis of the Camara Cervecera, an organization that compiles beer industry statistics. However, no matter how down trodden recent consumer tendencies might be, in an average year a whopping "86% of the population continue to prefer beer over any other alcoholic beverage."
And the 10% drop needs to be seen against a backdrop of per capita consumption that has tripled in the last 30 years.
Just last month German-owned, Casa Isenbeck flooded the market with US$1.5m worth of its premium ale during its amizade-building, 2-for-1 promotion. The brewer also invested US$20m, expanding its Zarate brewery and increasing distribution to the provinces of Cordoba and Buenos Aires.
Consumption by Beer Type 2000
And by using its premium brand recognition among consumers, Casa Isenbeck, has succeeded in attaining a 12% market share in both provinces.
According to Cecilia Artusi of Casa Isenbeck: "In the last year there have not been major changes in the total market volume. This would suggest that the recession is not the reason the industry has not experienced growth."
Claiming a 7% market share in the country as a whole, Casa Isenbeck contributes its success to a diverse product line that offers consumers a choice.
Over the last century the beer market in Argentina has become a playground for foreign investment. Not only does this mean that hedging is keeping investors money from benefiting the local economy, but local wages and jobs are being cut, leaving employees to feel left in the cold.
Aggressive sales and marketing tactics are being developed to attract new, beer-drinking consumers, but how can these companies compete with the expected 10% decline in consumption?
In the long run, local producers may come out on top as they continue to produce what is consumed and maintain current overhead costs in an unpredictable economy.
However, if predictions by the big producers in the country are correct, innovative product introductions and thirsty consumers will surpass low wages and inflation.
To view the full Argentinean Beer report click here
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