SABMillers Casa Isenbeck deal offers several advantages

SABMiller's Casa Isenbeck deal offers several advantages

SABMiller will be choking on Anheuser-Busch InBev's exhaust fumes in Argentina, but its entry into the country via the purchase of Casa Isenbeck still holds significant advantages.

Anheuser-Busch InBev's Quilmes division dominates Argentina's beer sector, accounting for 75% of the market by volume. Chile's CCU, which is part-owned by Heineken, is second on 12% and Casa Isenbeck sits a distant third on around 7%, according to figures from Datamonitor.

In this context, it's going to be hard for SABMiller to build up much scale in Argentina and the brewer's executives were yesterday talking down the deal as relatively "small-fry".

That said, the Miller Genuine Draft brewer will admit to two main advantages of the deal. Analysts see a third, too.

First, the deal gives SABMiller a brewery near Buenos Aires, from where it can more easily supply its operations in Paraguay. Currently, the brewer is forced to ship lager long distances to this market and the Casa Isenbeck brewery should, therefore, cut costs. Latin America is SABMiller's most profitable geographic market, so efficiency savings here will more greatly influence company earnings.  

At the same time, Argentina's beer market has grown steadily and is set to continue doing so. Datamonitor figures published in September show that the market reached ARS8.1bn (US$2bn) in 2009, having grown by 4.8% annually since 2004. Value growth is set to rise by 4.4% annually on average up to 2014.

Premium beer commands a minuscule space in the market, but has shown double-digit volume growth. SABMiller will have an opportunity to develop this segment in the sort of fleet-footed approach that it has already pursued in several other markets with relatively little scale, including the UK.

It should be noted, however, that Argentina's economy looks considerably more precarious than that of, say, neighbouring Brazil. The country is still attempting to pay off the legacy of a debt default around eight years ago. Analysts and Argentina's own statistics agency differ on whether the country entered recession in 2009, but gross domestic product is set to rebound strongly in 2010.

Naturally, this poses a risk to the beer market, although SABMiller can afford to bide its time.

The third advantage for SABMiller's move into the country is that it could provide good preparation for a splurge in neighbouring Brazil, one of the world's most profitable beer markets.

While SABMiller's incoming head for Latin America, Karl Lippert, last night denied that the group has plans to enter Brazil, many analysts think otherwise. "The group is likely to concentrate its strategic efforts on growing share of premium segment in Argentina," said Evolution Securities in a note. "In time, we believe, successes and learnings from this strategy could be used to lay the foundations for a move into the Brazilian premium segment."

SABMiller be warned, however: If Argentina is Anheuser-Busch InBev's garden, then Brazil is its living room.