COMMENT: Quinsa must seek efficiencies to defend margins

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South American brewer Quinsa has seen sales of its flagship brand Quilmes Cristal slide by more than 11% in two years says a report from beverage industry analysts Canadean. It goes on to predict that as a result, the company must continue to seek operational efficiencies if it is to defend margins.

Quinsa has been badly hit by Argentina's economic meltdown. The country generates the majority of the company's income, and produces most of its beer, so this has hardly been conducive to growth.

Quinsa, the parent company of Quilmes International Ltd also boasts brands such as Andes, Bierckert, Norte and Pilsen among its considerable Latin American portfolio. In all, this portfolio comprises 33 different beers in 13 pack types. Of these, Quilmes Cristal is undoubtedly the most important, accounting for a huge proportion of Quinsa's total beer sales. Its continued decline has forced a reduction of costs - the merging of Quinsa's soft drinks and beer interests being a prime example.

This approach of reducing expenditure and strengthening cost management appears to have been initially successful with both operating profit and margin increasing in spite of decreasing turnover. However, Canadean believes Quinsa must continue along this path whether through increased production via mergers or by scaling down production if it is to protect its long-term interests.

One question arising from the recent deal with Ambev is whether this is a prelude for the Brazilian company to seek even greater control. Quilmes has been admired since 2000 when Ambev's international strategy director was quoted as saying: "I would love to jump out in front with Quilmes. If they want to sell, we are clearly interested." The report concludes that Quinsa will benefit by gaining access to the Brazilian market with Ambev importing and distributing their brands. In addition, Quinsa will add Ambev's brands to their existing portfolio in Argentina, Bolivia, Paraguay and Uruguay.

Whilst sales of Andes, Bierckert and Norte have held steady, Pilsen has declined sharply. This brand only represents 4% of total beer sales. However, in light of the fortunes of Quilmes Cristal, this must not be ignored.

According to the report, the outlook does though provide cause for optimism. Quinsa's strong brands throughout South America are supported by equally strong marketing. The beer market is anticipated to grow and the company's sound financial management should enable it to withstand the volatility, which is expected to continue in the region. Further operational streamlining should be completed in Bolivia bringing with it increased efficiencies. Despite its presence in the soft drinks sector, the company also appears to be firmly focused on developing and expanding its beer interests, which form the core of its business.

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