Could there be a case to export beer regionally for craft brewers? by James Maposa

A review of South Africa's (SA) beverage industry manufacturing sales, including beer, showed a growth slowdown from 8% in 2022 to just under 3% in 2023. Revenue for beverage manufacturing sales amounted to ZAR194.44 billion in 2023 and ZAR66.88 billion during the first four months of 2024. Sector earnings improved by 10.7% in the first four months of 2024 compared to the same period in 2023, suggesting that sales growth (for the most part in 2023) was hindered by load shedding, which limited production and sales potential. Other factors contributing to the higher 4M2024 sales include price increases due to higher inflation (5-6%) and a weakening Rand (resulting in higher prices for imported beer products). Thus, unit sales might have grown slightly, but revenue increased significantly due to higher pricing.

From a beer perspective, South African Breweries (SAB), the country’s largest brewer, reported record production in SA in 2023. AB InBev, SAB's parent company, noted that the SA unit was a standout performer across its global business, recording double-digit revenue and high single-digit profit growth. SAB's success is attributed to increased sales volumes of core brands such as Carling Black Label, Castle, and Castle Lite, and significant growth (over 30%) in global brand sales, particularly, Stella Artois and Corona. Despite SAB's strong performance, the country’s second largest brewer, and SAB’s main competitor, Heineken Beverages reported lower sales and attributed this to higher inflation, resulting in a ZAR10 billion write-off (impairment) of its South African business. Heineken did, however, report strong sales growth for its cider portfolio, with the business’ Savanna brand enhancing its market leader position.

Based on the above mixed fortunes, local craft beer brewers face significant market pressure and may need to rethink their business models to survive and thrive within these tough economic times. Compared to SAB and Heineken, craft brewers have much smaller promotional budgets, making it difficult to out-market larger competitors. Engaging in price wars could also be detrimental for craft brewers who lack the scale to sustain discounting strategies. Offering discounts might grow sales during the short-term, but will prove unsustainable in the long run, especially given the high initial investment in brewing plants and the recent additional capital costs being incurred for backup power sources brought on by load shedding.

Depending on output and the capacity to enter into strategic and mutually beneficial partnerships, an angle that local craft brewers could explore is regional export. Between 2020 and 2023, SA’s malt beer export earnings ranged between ZAR0.99 billion (2020) and ZAR1.63 billion (2023), peaking at ZAR1.81 billion in 2022 and growing at a 13.3% CAGR (2020-2023). Key export markets included Zambia (32% of 2023 earnings), Botswana (20.5%), Eswatini (12.7%), Lesotho (9%), and Namibia (8.9%). Other markets with an over 5% share of 2023 export earnings included Zimbabwe (6.2%) and Mozambique (5.1%). Amongst the top-7 markets, the fastest growing markets in terms of revenue CAGR growth (2020-2023) included Botswana (18.6% CAGR), Eswatini (18.5%), Namibia (16.1%), Zimbabwe (13.4%), and lastly Zambia (11.4%).

Admittedly, it is administratively cumbersome, risky and costly to export beer across the region. To overcome some of these risks, entering into strategic partnerships could be an option that could work for craft brewers. Examples include following leading retailers into key regional markets to determine uptake and facilitate growth of respective brands within priority markets. An example includes following retailers such as Spar, Checkers and PicknPay into regional markets and using their brick-and-mortar and distribution infrastructure to penetrate and hopefully grow sales within a target market. Additionally, partnering with lifestyle franchises like hotels, restaurants, nightclubs, and golf clubs could help position craft beers as the “house” beer, supporting brand growth.

Another approach craft brewers can explore is banding together to supply regional markets as a “packaged offering”. Such partnerships could reduce costs, share risks, and potentially achieve sales and profit growth. Two or three craft brewing companies could come together and form a joint venture that is committed to growing export sales based on the domestic successes of each brewer’s marquee brand. The joint venture will position the brands as part of one export company that approaches established retailers and other relevant out of home establishments within each target market to supply beer through them. Banding together increases volumes, enables the selling of a variety of brands and also brings other benefits including shared marketing, promotion and distribution costs. It is important that the joint venture comprises similarly circumstanced businesses (in terms of performance), otherwise the partnership could end up benefiting the more established brewer at the expense of the other smaller and less recognised brewers.

In conclusion, and if supplying the regional market proves unviable, local craft brewers could advocate and innovate around import substitution to boost local beer sales over imports. SA is a net importer of malt beer, with a negative trade balance ranging from ZAR0.85 billion in 2020 to ZAR0.27 billion in 2023. SA imports of malt beer have grown at a 7.3% CAGR, ranging from ZAR1.84 billion in 2020 and peaking at ZAR2.44 billion in 2023, and growing by 17.5% in 2023. This rise suggests that imports of global beers into the country are on a short-term rise. Craft brewers can take advantage of the rise in global beer demand by exploring partnerships with some of the brands without a physical presence in SA, to determine if they can locally bottle and distribute their beer brands through a licensing agreement. In turn, they can also enter into distribution agreements for their own beer brands into their partner markets and, thus, form mutually beneficial market access partnerships. Leading countries exporting to South Africa include the Netherlands (48% of total 2023 export value), Namibia (29.1%), Mozambique (8.2%), Mexico (5.1%), and Zimbabwe (3.2%). Sadly, the top-4 supplying countries could already be a part of the country’s leading beer brewers (SAB and Heineken) but exploring local production and distribution counter partnerships with beer brewers from Zimbabwe, Lesotho, Germany, Belgium, the UK, and Portugal could prove beneficial for local craft brewers.