South Africans can’t afford premium beer anymore, and are turning to cheaper lagers and soft drinks.
On Thursday SABMiller released its preliminary results for the 12 months to March 31. They show that lager volumes declined by 2% in South Africa – although they increased in the company’s sales internationally by the same percentage.
‘The weakness of the South African economy has certainly played a role,” said Nigel Fairbrass, head of media relations at SABMiller. He says that sales in regular lager held steady over the past year but the premium brands took a hit.
SABMiller attributes the drop to other factors as well. These include ‘weaker consumer spending, the timing of Easter and constraints on sales of alcoholic beverages imposed in the Western Cape”, the company’s online announcement of preliminary results said.
A financially anxious youth market may also be affecting the drop in sales. Greg Potterton, strategic director at trend-spotting agency Instant Grass, says that money that would usually be saved for alcohol is going to more basic goods like petrol, groceries and airtime.
‘The youth are bombarded by bad news about the recession, and while they might not be experiencing it they are preparing for it,” says Potterton. ‘As a result all monthly purchases become high-involvement purchases and all products begin competing for the same share of wallet.”
House parties are another bane in the beer market’s life. ‘The economic pinch has resulted in an increase in house parties where everyone contributes to a big night in. This has resulted in a decrease in on-con drinking [drinking on the premises where beer is bought],” says Potterton.
SABMiller’s earnings before tax were down 8% in South Africa ‘on higher input costs”. Fairbrass added that many contracts with suppliers had been negotiated before the economic downturn and the company is committed to upholding these contracts — which will ‘last for a while — at the agreed prices.
The weakening of the rand also compounded the impact of commodity price increases, the company said. But it remained confident of its medium-term prospects and was taking ‘appropriate short-term mitigation actions in certain countries to reduce costs”.
According to Fairbrass, SABMiller is looking to cut costs across a range of different areas, particularly in distribution and marketing. However, he pointed out that South Africa was an exception as far as marketing is concerned. ‘We’ll be reinvesting that cost saving to increase our marketing spend.”