Longer wait for SA dark beer

London - British drinks giant Diageo Plc plans to eventually brew its Guinness beer in South Africa now that its new joint venture brewery near Johannesburg has started up, but local production is still some years off.

The new brewery at Sedibeng, south of Johannesburg, built by Diageo and Heineken started brewing its first Amstel and Windhoek beers four weeks ago, and is expanding to compete against the dominant local brewer SABMiller Plc.

"Our intention is to build the Guinness brand in South Africa to justify brewing the beer there, which we expect to do in the next few years," said Diageo's Africa region managing director Nick Blazquez at a group seminar on its beer business.

The greenfield brewery cost €272m to build by the 75:25 Heineken-Diageo venture and its success has prompted the two to bring forward an extra €36m of investment in packaging as it takes market share off SABMiller.

The brewing and packaging plant will soon start bottling Diageo's ready-to-drink products such as Smirnoff Ice and its local cider brands, then move towards brewing Heineken beer while plans to brew Guinness will come later.

Blazquez says the Guinness market will have to grow to 50 000 hectolitres a year from around a third of that at present before brewing in South Africa makes economic sense. He said dark beer already exists in South Africa with SABMiller's Castle Milk Stout, giving an opportunity to expand Guinness.

Heineken's chance to expand in South Africa came in April 2007 when it won back the rights from SABMiller to brew and distribute its Amstel brand in the country, and Heineken linked with Diageo and Windhoek-brewer Namibia Breweries to market a range of their beers and other products in South Africa.

SABMiller's beer market share has slipped to around 91% from 98% after it stopped brewing Amstel, with the Heineken-led grouping taking up the lost market share.

Africa generates around 10% of Diageo's profits and some 40% of that comes from South Africa, but largely through the sale of spirit drinks like Bell's scotch whisky whereas South Africa also accounts for almost a third of Africa's beer consumption.

- Reuters