SAB Ltd, the South African subsidiary of SABMiller plc (SAB), the world’s second largest brewer by volume, confirmed on Thursday that given the rapid growth in the premium beer market in South Africa, the company foresaw double digit growth over the next 10 years.
The premium market currently constitutes about 4% of the total beer market in South Africa, of which SAB Ltd has a 73% market share.
Premium brands in the SAB Ltd stable include Amstel, Castle Light, Sterling, Miller Genuine Draft and Pilsner Urquell.
SAB Ltd head of communications Michael Farr said in a statement on Thursday that the premium market was growing at a compound rate of around 16%.
“We believe that given current trends, the premium sector will continue to grow until it constitutes approximately 8% of the total market, in line with international norms. SAB Ltd is extremely well placed to take advantage of this trend, and we remain committed to offering brands in this sector to assist it to achieve growth over a long period of time.”
SAB’s five brands in the premium sector appealed to different segments of this growing market. The recent introduction of premium brands Miller Genuine Draft (MGD) and Pilsner Urquell to the South African market had received strong consumer support, Farr said, with MGD likely to exceed the company’s growth targets and Pilsner Urquell set to meet its target for the fiscal year.
“MGD’s volumes to date and growth potential are particularly good, and indications are that volumes for the year are likely to exceed target, and perhaps even that achieved last year by a competitor’s premium brand that has been in the market for a decade,” said Farr.
“Super premium brand Pilsner Urquell is also set to meet its target for the fiscal year. Pilsner Urquell is brewed in Plzen in the Czech Republic and is exported to over 50 markets worldwide.
“SAB’s array of premium brands is a balanced portfolio, particularly as our products are targeted at different parts of the premium market. This means that they are not competing with each other and therefore the risk of cannibalising is low.
“The early success of both brands is in line with our strategy on premium brands. As SABMiller CEO Graham Mackay said recently, our longer term strategy involves the development of higher quality brands and capturing the drift towards high value brands”, added Farr.
Noting the announcement that Budweiser is to be introduced to the South African market, Farr said that it was “unsurprising that other beer companies find this premium sector interesting”.
“While margins are good in the premium sector, the history of our beer market shows very clearly that establishing a brand in the South African market is very costly. Entering this premium market really requires a long-term view.
“80% of the South African beer market is in the returnable pack sector. To achieve any real degree of traction in our market carries a high cost related to the need to construct local production facilities and other significant infrastructural investments.
“Another major consideration is the fact that although the premium market is growing quickly, the market accepts a cost premium of about 20%. Any cost premium above that and entry becomes less attractive; the value-benefit tradeoff is simply not enticing,” he concluded. – I-Net Bridge