When David decides to challenge Goliath | Fin24

When David decides to challenge Goliath

Feb 05 2020 14:50
Jana Jacobs

Before Heineken opened its Sedibeng Brewery in Johannesburg in a joint venture with British multinational alcoholic beverages company Diageo in 2010, all Heineken products were imported to South Africa. 

As of 2016, Heineken SA has been operating as a standalone beer and cider business in the country and over and above its 75% stake in Sedibeng, Heineken SA has a 30% stake in Namibia Breweries; 100% of both the Soweto Gold Brewery and Stellenbrau Brewery; as well as a 49% stake in the Jack Black Brewing Company.

It has been over the last three years that the company has experienced immense growth in SA, according to Gerrit van Loo, managing director of Heineken SA. Currently, the company has an 18% market share and is the second-biggest player in the local industry. 

To keep pace, Heineken SA announced in 2019 that it would be investing €60m towards increasing the production capacity at its Sedibeng Brewery, with construction expected to be completed within the first six months of this year.

The expansion will increase production capacity from 6m to 7m hectolitres annually, but Van Loo points out that because they are reaching masterplan capacity at Sedibeng, they are still looking at how they could stretch that final figure.  

Currently, Heineken SA still receives some of its imports from the Netherlands and Namibia, but one of the company’s goals is to see that no Heineken products need be imported into SA in the future. 

In addition to the expansion underway, there are also ambitions to build a maltery in the country. 

A brewing success

Van Loo has only been at the helm of Heineken SA for around 16 months. 

Asked what he thinks has driven the organisation’s growth here, he is quick to point out that the company, especially under the leadership of his predecessor, “has done a fantastic job in actually getting the machine going”.  

“I think the strategy was right for a growing organisation. We really came out of sort of a start-up [in the SA context], and now we sort of have to say, ‘guys, the start-up days are over. We are somebody’.”

He explains that there are still processes and systems to be improved, and that has primarily informed his role of stabilising the organisation, and focusing on collaboration within it, over the past year.

Furthermore, he believes the momentum has been good for Heineken because “there hadn’t been a lot of competition in this market, so I think people were waiting for international brands to come in. 

All our brands have done well, but Heineken [the beer] has done exceptionally well. The focus of the sales force; the right marketing plans; increasing the availability of our products in the market, all contributed.”

Although Van Loo believes there will still be growth for Heineken SA, it won’t necessarily continue at levels seen in recent years. It’s been more about the company claiming market share in SA, since the beer market itself has not seen much growth between 2016 and 2019, he explains. 

However, it picked up slightly again in 2019, which he also believes will push for more competitiveness.“Yes, we want to continue to grow. We want to continue growing for the very simple reason that I think that the competitiveness in the marketplace can still be increased. 

I mean, it’s still very much David against Goliath. So, we think David should grow a little bit in order to bring competitiveness to the market.“From a business perspective this also creates economies of scale from our side, so that will also make our business potentially more profitable than it currently is. So yes, we do still see a lot of opportunities here.”

Finding opportunities in SA

Given SA’s current economic woes, are there concerns around consumer confidence?

“Even if the going is a bit tough, people will always drink beer. Apparently [Heineken] is that affordable premium beer that people want to give to themselves. It’s questionable how logical that is, but it happens, it’s what I see. So even in the tough economic circumstances we’re in at the moment, beer business is still good.”

However, this is not the case everywhere, he points out. Referring to “modern food” retailers, Van Loo explains they are “seriously under pressure”, with the exception of the liquor branches of these retailers. “So yes, there is definitely pressure. And will that affect us? I think it will affect us in terms of growth levels.”

Furthermore, there is an increased variety in the market to compete against. It's one of the reasons the company is balancing its total portfolio with ciders, explains Van Loo, adding that SA is Heineken’s second-biggest cider market, after the UK. Given that SA’s cider market is “only 25 years old, it’s very encouraging for what we want to do with cider globally. 

You can actually build a tremendous cider business in a country from scratch. I find it very encouraging.”Van Loo is also making considerable plans to expand Heineken’s non-alcoholic offering in SA, saying that they have already been enjoying good business with products like Amstel Radler and Heineken 0.0. 

He admits it’s early days, but he believes the worldwide trend towards well-being and health consciousness is picking up in SA and will influence consumer behaviour. “Maybe not tomorrow, but that is definitely going to happen, and we want to be well-positioned for that.” 

In some of Heineken’s European markets, non-alcoholic beers already contribute 10% to total business, he says.And despite not being quite near that global figure in the domestic market – Van Loo says it’s less than 1% of total business currently – the question he asks is whether this can grow.

“And I think the answer is yes,” says Van Loo.When asked to elaborate on how he plans to position Heineken SA appropriately in this space, Van Loo plays his cards close to his chest, only revealing that there are big plans for this part of the business in 2020. It looks like David’s slingshot is ready.

This is a shortened version of the story that originally appeared in the 6 February edition of finweek. To get the full story you can buy and download the magazine here or subscribe to our newsletter here.

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