The South American brewing giant AmBev issued sobering news this week when it said that it expects its domestic beer sales volumes to drop over the full year.

The announcement, on a conference call with analysts, comes after the company revealed third quarter sales in Brazil had fallen 12.3%. However Ambev still managed to post an increase in EBITDA on the back of price rises and better product mix.

"In light of the higher-than-anticipated volume decline during the third quarter 2003 and considering that volumes for October were weak on a year-over-year basis ... we expect overall volumes for 2003 to slightly decline related to 2002," Luiz Fernando, AmBev sales and distribution director said yesterday.

Brazil's weak economy, price increase by Ambev that have not been followed by its rivals, aggressive marketing by competitor Schincariol and poor weather were blamed fort AmBev's poor volume performance in the third quarter.

Over the three months the company's market share also fell by 4% to 66%. And Fernando said that Ambev "might" have seen a further one percentage point drop in October.

Speaking of a recovery co-chairman Marcel Hermann Telles said: "It is going to take time, but we will respond in our own way," he said. "We will concentrate on the basic things that we know how to do, of course with redoubled vigor ... Everyone here is in a kind of war mood."