Colombia might become a battleground for SABMiller

Colombia might become a battleground for SABMiller

With markets as varied as SABMiller's, there's always going to be a few bad eggs in quarterly results. Yesterday's first-half statement was no different, with China and Australia marked out as the problem pupils. Latin America, in contrast, behaved impeccably with the region boosting sales by 4% and EBITDA by a healthy 7%.

Come future results, however, there's a chance the region may not remain the star performer for SABMiller. 

This week, Chilean drinks firm CCU announced it is to enter the Colombian beer market after signing a joint-venture deal with a private conglomerate. 

CCU is part-owned by Heineken, and as Investec analyst Anthony Geard points out in a note yesterday is a “well-armed new entrant” into what is SABMiller's most profitable market. 

The JV will boast heavy financial backing as well as the rights to distribute Heineken brands in Colombia, and is likely to strengthen CCU, which also operates in Chile, Argentina, Uruguay, Paraguay and Bolivia. The joint-venture will also build a brewery that is expected to open in 2017.

With SABMiller's latest results showing struggles in Asia, the company doesn't need a challenge to its domination of the Colombian market, where subsidiary Bavaria controls an estimated 99% of volumes. 

However, if there is to be a fight, as Nomura's Ed Mundy points out today, SABMiller may well be up for it, judging from past form.

In 2007, the Ajegroup attempted to enter the Peruvian beer market with a range of discount brands. The attack was successful - for a time. SABMiller's volume share in the country dropped from 91% to 82% but eventually was to recover and today is higher than before at 94%, according to Mundy.

But CCU poses a different problem. Heineken's brands, particularly its trademark beer, is resolutely premium and will probably go toe-to-toe with SABMiller in the high-margin category. Furthermore, in the Peruvian case, SABMiller defended its territory with an increase in marketing spend, as it did in South Africa in 2007 when it lost distribution rights for Amstel and was forced to scrabble back market share. This will mean lower margins for SABMiller in Colombia as the company increases advertising. 

As Mundy says, the Colombian beer market is set to become more complicated with “some risk of value leakage” as business costs increase. Right now, those are costs that SABMiller could do without.