Meshack Mabogoane reports on the saga that has been=20 played out at National Sorghum Breweries
National Sorghum Breweries (NSB) has teamed up with=20 Indian brewing giant, United Brewery International=20
The deal means NSB will now produce the Indian brewer’s=20 Kingfisher Lager at Vivo’s brewery.
The joint venture marks the most extensive Indian=20 investment in South Africa to date, and it will perhaps=20 give NSB the muscle it needs to face up to its powerful=20 rival South African Breweries (SAB).
UB will buy 30 percent of NSB’s equity with the option=20 of increasing its shareholding. A Memorandum of=20 Understanding between NSB and UB includes a=20 “significant role” for UB in the management of NSB.
UB, which has a R3,8-billion turnover, will also=20 “undertake the training of NSB’s employees at its=20 various plants overseas” as well as evolving a=20 management exchange scheme.
Most significantly UB will produce its brands at the=20 Vivo plant. This will widen the range of clear beers in=20 the NSB stable, adding more competition to this already=20 crowded market.
The deal hopefully marks the end of the beleaguered=20 NSB’s problems.
In 1990, NSB’s high-profile chairman, Mohale Mahanyele,=20 threw down the gauntlet to SAB, apparently unaware of=20 what befell Louis Luyt and Anton Rupert’s group when=20 they tried to carve a niche in the lucrative beer=20 sector in the Seventies.=20
Mahanyele made daring statements about hiving off 20=20 percent of the clear beer market from SAB, which holds=20 about 98 percent of the market.=20
Vivo Breweries came on line with sorghum serving as the=20 milch cow — NSB had more than 85 percent of the 1,2- billion-litre annual sorghum beer production, giving it=20 a turnover of R600-million. The beer market is largely=20 black turf and Mahanyele counted on black support,=20 presumably along the lines of the erstwhile Afrikaner=20 saamstaan. Unfortunately, there have as yet been no=20 cheers from the market and Vivo flows sluggishly.
In 1992, NSB diversied into the food industry, a=20 strategic and seemingly wise move since trends=20 indicated a long-term decline in sorghum. However, all=20 NSB’s ventures into food and beverages — Ting a=20 Mabele, Soul Foods, NSB Mageu — came to nought. Hopes=20 were pinned on Jabula Foods, bought from Premier, but=20 they were soon dashed by consumer changes and loss of=20
Only the soft drink division, producer of Pride Cola,=20 is making some modest gains.=20
This leaves sorghum as the last, great hope to keep the=20 company afloat. But, the 1990 agreement, which gave NSB=20 the sole right to sell sorghum in the prime urban areas=20 while keeping its competitors locked in the former,=20 poor homelands, is due for revocation in October.
Already SAB’s sorghum division, Traditional Beer=20 Investments (TBI), which claims 20percent of the=20 market, in spite of the restrictions, is planning to=20 increase its share to 30 percent. Other small brewers=20 may be waiting on the sides to slice off more portions.=20
Meanwhile, the huge Vivo investments, a hefty chunk=20 being bank loans, have begun to weigh heavily. It is=20 understood that its main creditor, Nedbank, has taken=20 an interest in finding suitors to salvage its debtor.=20 So, too, have the Liquor Industry Association and the=20 Taverners Association.
Foodcorp, whose products include mageu, and black=20 investment group Thebe, formed a rescue consortium,=20 which has since been withdrawn. The consortium offered=20 capital (up to 60 percent of equity), distribution=20 networks and expertise, as well as internships for=20 NSB’s staff at Foodcorp. But, demands were made to=20 close Vivo and to restructure management — this=20 involved separating the roles of chairman and chief=20 executive, a move intended to curtail the power of=20 Mahanyele. NSB, which had initiated the talks,=20 declined, indicating the hold Mahanyele, its founder=20 and driving force, has on the company.=20
Despite the UB deal, NSB is not out of the woods.=20 Judging by past experiences in the liquor industry the=20 scene is set for an intense “beer war” reminiscent of=20 the Seventies. =20
Sceptics are apprehensive about the new partnership.=20 NSB’s rejection of offers from two companies rooted in=20 South Africa — the one in the food and beverages=20 sector, the other at the centre of black economic=20 empowerment — is viewed as a missed opportunity to=20 bring in local resources and relevant experience.=20 Whether an oriental brewer, with less tradition and=20 expertise than the European and American brewers that=20 baulked at the prospect of taking on SAB, will succeed=20 is moot.=20
However, Mahanyele’s gamble may well pay off. With an=20 increase in NSB’s clear beer brands, a broader net=20 would be cast in the market. But most interesting is=20 the racial element. The local Indian community could=20 lend both its distribution network and group loyalty to=20 ethnic ventures. Africans may yet follow this example.=20 And should NSB offer quality products, brand loyalties=20 and consumer behaviour may change. Demand for clear=20 beer will rise along with living standards.
NSB’s long-term prospects thus look better. Even a 10=20 percent market share, half of Mahanyele’s ambition,=20 realised initially through regional concentration,=20 would make it a sizable player. With the other brewers=20 — Bavaria and Sterling — its share of small and=20 medium size clear beer producers could well be 20=20 percent, a significant cut. Perhaps developments in the=20 soft drink sector, where Pepsi and smaller cola=20 producers are making real inroads, could be repeated in=20 the beer industry. Mahanyele’s undoubted shewdness,=20 tenacity, vision and drive may pay off.
Those seeking a deconcentration of business, or real=20 competition, without overt government intervention=20 through anti-trust measures, should view NSB’s=20 struggles with interest. It covers all the key issues=20 in South African business now: it is a privatised=20 company, embodies black economic empowerment, involves=20 massive corporate restructuring, underlines the=20 difficulty of competition with an efficient near=20 monopoly, and might yet present the government with a=20 dilemma if it fails completely.
NSB is a test case. The first, most conspicous,=20 genuinely black-managed of the new “black” giants is=20 perhaps fated for this role. Its saga may provide a=20 classic case study of the vicissitudes of black=20 enterprise as it struggles to enter the mainstream.