Heineken in South Africa
The Dream Team
This document was prepared for Professor Egan University of Maryland University College
Upon entering into the alcoholic beverage industry in South Africa, Heineken encountered several key issues including legal concerns regarding a contract with SAB Miller, a struggling subsidiary, outdated infrastructure, fragmented retail landscape, ever-changing government laws and regulations, and limited access to a skilled work pool. Since Brandhouse, Heineken’s subsidiary, has been able to establish a local production facility, it has been able to grasp 12.8% of the South African beer market. Strategies and business practices attributing to their success are strategic joint ventures (most notably the DHN JV) with industry giants, re-evaluation and realignment of business practices and organizational goals, innovation, rapid response, and strong CSR practices. Heineken’s entry into South African through the Brandhouse joint venture provides a successful entrance example for adult beverage companies to consider when planning to access to the market. It is highly advised that entry is not done alone. The market is established and highly competitive, leaving little chance of new companies succeeding. Pooling resources is the best strategy in this situation. Slide 3
Specific operational, managerial, and organizational problems incurred by Heineken in South Africa?
Heineken established their footprint in South Africa in 1977, when it contracted SABMiller to produce, distribute, and sell its Amstel product within that country. SABMiller used Amstel to help it establish a 98% monopoly of the beer industry of the country in 2003 (Appendix 1) (Pluckett, 2004). South Africa’s beer market has been the largest in the continent with 30.9m hectoliters currently being consumed each year (Baker, 2015). This amounts to 3.4B USD each year and is growing annually at 2% (Marketline, 2015). As part of its 2004 effort to expand globally by entering developing countries, Heineken began operations in South Africa though a joint venture. Brandhouse was born and gave Heineken the partners of the top spirit producer of the world, Diageo, along with the Southern African native, Namibia Breweries (Heineken International, 2014). All three organizations gained entry into the South African adult beverage market with equal shares of Brandhouse. Despite Heineken’s entry into the South African beer market as a competitor to SABMiller under the Brandhouse joint venture, the rights to produce and distribute Amstel still belonged to SABMiller due to the previously mentioned contract. Amstel had been a successful beer in South African for over 35 years and accounted for 9% of SABMiller’s total beer sales. This helped it to maintain it’s near monopoly of the nation’s beer market. Meanwhile, Brandhouse struggled to grasp hold of the beer market with only 2.2% of its sales in 2004 (Diageo, 2008). This continued on until 2006, when SABMiller transferred 15% of the ownership of the company to BevCo, a subsidy of the company. Slide 4
Heineken seized the opportunity to take back total control of Amstel and initiated arbitration for the termination of the contract. Heineken reasoned that the change in ownership was not in the best interests of their Amstel brand and did not permit the continuation of the contract. In March of 2007, the case came to an end in Heineken’s favor and SABMiller ceasing the production of Amstel (Mametse, 2007). This allowed Brandhouse to begin carrying the leading premium beer on the market in its lineup and lead to instant shares of the beer market. Since taking back the Amstel product, Brandhouse has been able to establish a local production facility and helped to claim 12.8% of the South African beer market, most of which Heineken’s Amstel beer is...
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Chart courtesy of Heineken Company - Management (Heineken, 2015)
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