A joint venture between SABMiller and Coca-Cola Amatil threatens to upset the Fosters/Lion Nathan duopoly that has prevailed in the Australian beer market for years, writes David Robertson, and may encourage other international brewers to go it alone down under.

The decision by SABMiller and Coca-Cola Amatil (CCA) to establish a joint venture in Australia is the first major challenge to Australia's domestic brewers in many years.

Foster's and Lion Nathan operate a cosy duopoly in Australia, controlling about 90% of the market. Between the two companies, market share is split roughly 55% to Fosters, which makes Victoria Bitter, and 45% to Lion Nathan, which brews Tooheys New and Castlemaine XXXX.

Every year, these figures go up a bit or down a bit depending on which company is blowing its money on wine, spirits and other non-core ventures. But basically, these two companies have controlled the beer market in Australia for years - until now.

SABMiller and CCA will form Pacific Beverages later this year to distribute and market SABMiller's premium beers, Peroni Nastro Azzurro, Pilsner Urquell and Miller Genuine Draft.

Premium beer has been a rapidly developing segment in the Australian market in recent years, growing by about 15% annually for the last five years, and SABMiller wants some of the action. Its beers are already sold in Australia, but none of the brands has a significant presence.

SABMiller has a number of distribution deals in Australia, including with Fosters and Lion Nathan, and has entered negotiations to terminate these agreements.

Insiders believe that the company has become frustrated that its licensing deals in Australia have not produced better returns. It wants to control all aspects of brand management, especially marketing and promotion. Ironically, Fosters is facing a similar problem in North America - where SABMiller distributes the eponymous Aussie beer in direct competition with SABMiller's imported brands.

Most international brewers, like Heineken, have chosen to sign licensing deals with the big two Aussie companies rather than fight their dominant market position.

However, as it bids to take control of its own destiny in Australia, SABMiller has teamed up with the one company in the country which arguably has a distribution network and marketing know-how to match the brewers, CCA.

It is also fortunate that CCA has been looking to move away from its concentration on fizzy drinks in recent years. It has been buying fruit juices and water brands as it seeks to diversify out of the stagnant carbonated-drinks sector. The decision to move into alcohol is a logical extension of this strategy.

SABMiller will not reveal how much it plans to spend on Pacific Beverages but the costs will be mitigated by riding on CCA's coattails. Most of the infrastructure is already in place and it will be marketing and promotion where most money is spent.

Given the weak position of SABMiller's brands at present this appears to be a win-win situation for the company.

There is more risk for CCA as it will expose itself to new competition from two extremely cash-rich companies - what is to stop Lion Nathan and Foster's seeking their own water, fruit juice and soft drink partnerships now?

But the clear losers here are Foster's and Lion Nathan. Both companies are so focused on competing with each other they may not handle a new competitor very well. Even more worryingly, if SABMiller makes a success of its joint venture, other global brewing giants may decide they too want to control their brands in Australia.