As managing director of SABMiller's European division. Alan Clark has a diverse group of markets in his charge, including Russia, Italy, the Canary Islands and Romania. In the second part of this month's double-header just-drinks interview, Clark discusses the differing challenges and opportunities facing the brewer across the region with Olly Wehring.

Prior to joining SABMiller in 1990, Alan Clark was a clinical psychologist in South Africa. The (usually) misplaced nervousness I feel around 'mind people', as I call them, was absent when I met with Clark - but that's only because I didn't know this fact at the time. Looking back, though, did Clark have me exactly where he wanted me - who was interviewing whom?

We begin by looking at the performance of Clark's SABMiller Europe division. He has been managing director of the region - which covers the Canary Islands, Italy, Poland, Czech Republic, Slovakia, Hungary, Romania and Russia - since 2003.

Clark is upbeat about the company's progress in his markets, which overall continue to grow. "They still remain in growth, which is good news," he says, "but that's equally good news for the whole beer market. With our strategies, we'd hope to outperform the market and gain share from others - not just from other multinationals and regional players but also from other beverage and liquor types."

A closer look at the markets suggests Clark has an array of issues to deal with. In the west, the Canary Islands and Italy, the unit is dealing with what Clark calls mature markets. "When I say mature, I mean that the beer market has been stable for a long time in both the Canary Islands and Italy," he says. "We're continuing to move our mix in the Canaries towards premium beers and improve our already strong position in on-premise. We don't see the beer market growing much at all over the next few years. In Italy, the beer industry as a whole will try to upgrade the image of the category - I don't think it'll be only us trying to do this. We need to upgrade the role of beer in different consumption occasions."

Clark concedes that overall per capita consumption in the whole region is let down by Italy. The average for the area is 64 litres, although Italy lags behind the other countries by between ten and 20 litres.

"Russia and Romania are growing stronger and stronger and we can expect much stronger growth coming through from them," Clark continues. "The Eastern European markets are not mature, they are reaching maturity. Hungary is the one market that is much tougher then the others from an absolute growth point of view." Clark, who is based in Budapest, highlights the increasing power of the value sector, the high degree of competition amongst international retailers and the three-way tie between InBev, SABMiller and Heineken in the country.

Like many brewers operating in these countries, SABMiller has high hopes for its international premium brands in developing markets like Hungary, Romania, Russia and Poland. Yet the path has not been smooth, with Pilsner Urquell, for example, performing below expectations in Poland since its launch five years ago. "I think a major issue for us is that we came to this game (premium brands in Europe) a lot later than our competitors," Clark says. "We have very good mainstream and local premium brands now - we've developed those very well. But our competitors have had their international premium brands on the world stage for a lot longer than us. So our biggest issue is around building the reputation of these brands in the mind of the consumer, which obviously starts with having the right portfolio in the first place. There has to be a reason for the consumer to believe why they should pay more for their brand or that there is something unique and differentiating about premium brands, that's the big issue for us."

Clark emphasises that the company is quite comfortable with its international premium offering - made up of Peroni Nastro Azzuro, Miller Genuine Draught and Pilsner Urquell. "We have brands that have sufficient heritage and differentiation to justify the claim of them being premium beers that can move across markets."

At the same time, Clark notes that within the world beer market today, the largest share of volume and value still resides in local mainstream and local premium brands. "So it's not so much a question of enormous value today," he continues, "but it is about the five-, ten-, 15-year horizon and the degree of value they're going to represent over time, and at the time when they start becoming a substantial portion of volume and value, we want to make sure that our brands have been built to the right level."

In Eastern Europe, however, trading up could prove a challenge for SABMiller in the coming years. After all, the region is not getting richer overnight. "The first thing, obviously, is around the availability of those brands," he says, "bearing in mind many, if not all of them, have not been available in these markets before. In Poland, for example, Pilsner Urquell has been there for a number of years, while MGD has only recently arrived, and Peroni Nastro Azzuro has only been around for a couple of months. Secondly, it's about how we position these brands to the market, and what they represent. It's making consumers aware of the credentials of the brands. You have to work on what makes these brands represent greater value for the consumer."

Alan Clark

Should international premium prove as important a battleground as Clark hopes, is there not a risk of cannibalisation for the unit's local premium brands? Clark is sanguine. "I think what you'll end up with over time is a balance to your portfolio," he says. "If you took a world in which we had 100% of the market, then clearly every brand we introduced would cannibalise off one of our existing brands. However, that's not the case. If we had 30% of a market, then there's 70% out there, of which roughly 10%-15% would be represented by international premium brands and a further 15%-20% will be local premium brands. So we have the opportunity to go after the other producers' premium brands." Also, any cannibalisation would be good for a brewer's portfolio as consumers would be moving to a higher priced product. "If it's moving that way," he laughs, "then you can't be unhappy with it."

With a total of 19 breweries in the eight countries that make up SABMiller Europe, I ask Clark how the unit is looking in terms of production capacity. "In a number of our markets, we are in the next five years going to be making capacity expansion," he says. "We would certainly be looking at capacity expansion in Czech Republic, Romania, Russia and Poland. Whilst this will not be an unexpected or unplanned spike in our expenditure, that's where the blips will be over the next five years. In our next financial year (2007-2008), we'll be doing a further expansion in Czech Republic, Romania and Poland and we'll be initiating an expansion in Russia."

The future challenges that await SABMiller Europe should keep Clark entertained. He certainly seems to be enjoying his role - but is that just what he wants me to think?