Last week witnessed the birth of Distell, South Africa's new drinks giant and the tenth largest drinks company in the world. Arnold Kirkby reports on its plans to challenge the world's biggest and the fight to still see it disbanded.

Distell, the South African liquor giant, last week launched its new corporate identity and officially listed on the Johannesburg Stock Exchange's Security Exchange.

The new group, formed through the merger of Distillers' Corporation and Stellenbosch Farmers' Winery late last year, said it hoped to achieve a 25% return on invested capital.

The launch was a quiet dignified affair at the Oude Libertas Centre in Stellenbosch. This is in stark contrast to the controversy surrounding the merger following as it does a Seagram Africa interdict through the Cape High court to stop the merger. There have also been two independent applications to the Competition Tribunal by Bulmer SA and Seagram Africa to try and terminate the process.

Both Bulmer and Seagram contend that the merger between Distillers' and SFW is notifiable in terms of the Competition's Act.

Distell counters that assumption, claiming that the voting pool made up of South African Breweries, KWV and Rembrandt, each with a 30% share in the former companies, exercise the same authority in the new dispensation.

Communications director, Andre Steyn said the new group was quietly confident that all authorities have been informed and that the Competition Commission looked at the matter on two occasions and found everything in order. It could take a few weeks for the Tribunal to make its findings known.

"We would not have gone ahead with the official launch if we felt there was a chance of there being any stumbling blocks at this stage," he said.

Stellenbosch Vineyard

Meanwhile at the launch Jan Scannel, managing director of the newly formed group said at an informal press gathering that competition in the alcoholic beverage industry had intensified over the past three years with increased global rivalry, while there were steady declines in the South African market.

He cited the formation of Diageo in the UK as a prime example as well as wine company mergers in Australia.

"According to excise figures from 1997 to 2000, the industry as a whole has seen losses in sales volumes of 13.5m litres of brandy, 4.3m litres of whisky, 5.9m litres of fortified wine and 3m litres of natural wine," he said.

"On the other hand, the alcoholic beverage (AFB) sector grew by 22m litres and white spirits experienced a growth of 3m during that period." However he continued: "This seems to have been a limited growth and it too is levelling off."

Scannel said that in order for Distell to grow, it had to look to overseas markets and its main focus over the next five years would be to increase total turnover from regions outside the South African Customs Union to 30% and to achieve a 25% return on invested capital by 2005.

"We have the passion, energy and drive to become a leader and innovator in the world arena"

"We are committed to creating new markets, new levels of efficiency and benchmarks of service and product excellence," he said.

Before the merger Distillers generated about a quarter of its turnover in offshore markets, while about 15% of SFW's sales were deemed as international. Distell now ranks as the 10th largest pure play liquor group in the world.

Scannel said the time was ripe to create a South African champion, with the necessary resources to take on the giants in the highly competitive international wine and spirits market.

"We may be the new kid on the block, but we have the passion, energy and drive to become a leader and innovator in the world arena. This merger has galvanised the strengths of two industry leaders to a united South African front, which will create global brands and spearhead new overseas markets."

One of the group's strategic investments has been in the area of integrated systems and it has invested R80m ($10m) in the installation of a state-of-the-art supply chain system.

Bergkelder Winery

With an asset base of R3.8 billion ($477m), turnover of R4.6 billion ($609m) and headline earnings of about R278m ($34.9m), Distell can claim to be the leading South African producer of wines, spirits and AFBs. It has an employee base of 5,500 employees and has 58 plants and depots around the country.

It has over 300 products in its portfolio, including the internationally recognised Amarula Cream, which it says is the second biggest cream in the world and the portfolio is through all categories and price ranges.

One of group's directors said senior management had been holding think tanks for six weeks and have taken an in-depth critical look at both companies to see how they operated in each field, then questioned whether there was a third or more options, before deciding what direction to take.

"It's like starting a whole new company. It's incredibly exciting to be doing something like this," said Gert Loubser, quality control and research director.