Heineken in Africa

Heineken in Africa

In the second of our just-drinks Interview special this month, Michelle Russell talks to Tom de Man, president of Africa and Middle East for Heineken, about the brewer's hopes in South Africa, and its partnership with Diageo in the region.

An imposing advert on the roadside heading into Johannesburg warns drinkers "to beware of the little green bottles". The reference to rival Heineken's premium offering by beer market dominator SAB is a sign that a storm may be brewing in a country that is fast becoming of growing importance to international brewers.

This is clearly of little concern to Tom de Man, managing director of Heineken's Africa operations however, who claims Heineken's share of the local beer market has grown by 2 percentage points to about 11% during 2009.

"We knew that the players [in South Africa] were very strong, so if you're going to enter it, you really have to build a very effective brewery, Man told just-drinks. "And the combination of Diageo and Brandhouse means we have a very strong brand portfolio to engage.

"That was really the strategy because many others tried and failed. You cannot start fighting a big competitor with very small means because [SAB] are just as good brewers as we are."

Heineken has joined forces with Diageo and Namibia Breweries, its other partners in a South African joint venture known as Brandhouse, and last month they officially opened a ZAR3.5bn (US$473m) brewery in Sedibeng, a suburb of Johannesburg.

Heineken has hailed the opening of the firm's brewery with Diageo in South Africa as "a victory for consumer choice".

Around 200 people attended the opening ceremony of the brewery, the centrepiece of Heineken and Diageo's plan to take on SABMiller in its home country. The facility will be responsible for brewing Amstel, Heineken and Namibian Breweries' popular Windhoek brand as well as Smirnoff Spin, Smirnoff Storm and Strongbow Cider.

It sits in 83 hectares and builders are already breaking ground on phase two of the brewery's expansion to raise capacity by a third, to 4m hectolitres, by September.

Nick Blazquez, head of Diageo Africa, has remained polite with regard to the firm's direct competition with SABMiller in the country, labelling them "a great company" with "great brands". Heineken, meanwhile, has been rather more direct. CEO Jean-Francois Van Boxmeer told attendees at the opening of the brewery that there is room for competition in the country, and that is "the adventure" that Heineken "is engaged in".

The competition, then, is about to intensify. SABMiller has around a 90% share of the South African beer market and a 58% share of the country's total alcoholic drinks market, according to the brewer's own figures. This is the first time that overseas brewers have started local beer production to compete in the world's ninth-biggest beer market, and Man is confident the new partnership can pick some share off SAB.

"We have 11% of the market and that is growing," Man tells just-drinks. "To what percentage I cannot say. Of course, I have an idea. But I will not share it."

Considering the approaching FIFA World Cup tournament in South Africa in June, many brewers are hopeful that there will be a marked hike in beer consumption in the country this summer. Man concurs, but believes it will not be "as fabulous as some people think".

Tom de Man
Tom de Man, Heineken's president of Africa and Middle East

"It is of importance but, for example, we have the Champions League with Heineken and that is almost every week for about eight months. If you look at how many people are watching the tournament in Africa that see the Heineken logo, it works fairly effectively," Man says.

Heineken however, is competing against SAB's Castle and Black Label lagers, both of which are relatively cheap compared to the Dutch brewer's "little green bottles". Nonetheless, Man is confident that there is a growing market for premium beers in South Africa.

"[Premium] has really developed with the country," he says. "Here, about 20% of the market is now considered premium, and we have [constructed] a highly efficient brewery in order to create a good cost price, which allows for an affordable premium price for the market."

Indeed, since beginning brewing at Sedibeng last year, Brandhouse has already cut its costs, and Diageo and Heineken are keen to reduce those further as they attempt to secure local procurement of raw brewing and packing materials to further ease distribution, access and price points.

Talk of a second brewery in the country, however, may be just that for the time being, as the partners get to grips with the new facility. "A the moment, our supply to the South African market comes out of Sedibeng, but there is also the Windhoek brewery (in neighbouring Namibia), which is still supplying part of our requirements to this market," he says. Incidentally, the distance from Windhoek to Cape Town is the same distance as Johannesburg to Cape Town.

"It is far too early to speculate about a second brewery. If we put a second site in too soon, then all the financial people will ask me, what are you doing?"

However, by way of a disclaimer, Man adds: "If a market will grow very big then you will have more breweries in the country."

Elsewhere in the world, Heineken and Diageo are competitors, but the pair clearly see the joint venture as the best way to chip away at SAB's market share. And, with Heineken owning 75% of the brewery, while Diageo owns the lesser 25% stake, what chance is there of other partnerships in South Africa outside of its current venture with Diageo?

"We have partnerships in other parts of the world and in some markets, like in Africa, it is very important for us," Man notes. "In Nigeria we also have local partnerships, and it works well. There are different mechanisms per country. But partnerships with colleague brewers? They are very few."

Maybe, then, the view Diageo's head of Africa has, that the Heineken partnership is the "best" he has worked in, is a shared one.