London, Oct. 8 - Global brewer SABMiller Plc expects to beat or match its beer volume target in its second most profitable market, Colombia, this year even though it saw a sharp volume spike in the previous year.
The world's second largest brewer cut beer prices and boosted marketing towards the end of 2006 sending volumes in this Latin American market spiralling higher, but the group is confident it can keep volumes on target this year.
The London-based brewer with a 98 percent share of the Colombian market squeezed retailers' margins, or mark-up, in December 2006, cutting real beer prices by around 5 percent and boosting fourth-quarter (Jan-Mar 2007) volumes by 16 percent.
Analysts say volume growth will have slowed in the first and second quarters up to end-September after the one-off December effect, but SABMiller says beer volumes will not dip below its regional target in its current financial year to March 2008.
"We aim to grow volumes in the medium term by 6-8 percent and we will not be below that range for Colombia in the next 12 months," Karl Lippert, President of SABMiller's South American Bavaria company, told a briefing.
The brewer set the 6-8 percent target for Latin America over a five-year medium-term outlook, together with margin improvement, and Lippert is confident growing beer consumption and taking share from local spirits will keep it on target.
Latin America is a key growth area earning a quarter of group profits, and analysts say growth will see the region become the group's biggest profits earner within 3 to 4 years, displacing South Africa which makes a third of group profits.
The Miller Lite, Peroni and Castle brewer bought Bavaria in 2005 giving it 85-percent-plus market shares in Colombia, Peru, Ecuador and Panama, which added to its central American acquisitions in Honduras and El Salvador in 2001.
Key to Latin American growth is Colombia which provides half the region's beer volumes and earnings, and despite high excise taxes and security concerns it hopes to raise consumption of the nation's local beers such as Aguila, Poker and Costena.
Colombia, the world's fifteen biggest beer market just behind Canada and France, saw rising growth in the four quarters of the year to March 2007, of 8, 10, 11.5 and then 16 percent to give an overall annual growth of some 11 percent.
Lippert's new target is to push Colombian annual beer per capita consumption up by a third in the next 5 years to 60 litres from 45 litres and close the gap on the U.S. at 80 and Britain at 100 litres, and looks for 48 litres by March 2008.
He is upbeat on Colombia despite its volatile currency and the high cost of shipping barley from Argentina and Canada as Lippert sees all the signs of future growth in the group's fourth biggest volume market after China, the U.S, and South Africa, and No 2 in profits behind South Africa.
In the group's first-quarter (April-June), Latin American volumes were up 12 percent and while it does not separate out Colombia, it did caution last month that the region's growth is expected to moderate over the remainder of the year.
This caution comes after the exceptional growth from the previous year and as it monitors the effect of a U.S. slowdown on the Colombian economy. But one problem SABMiller does not have to watch in the Colombian market is competition.
South America's top brewer AmBev, part of the world's No 1 brewer InBev shows no sign of wanting to enter Colombia after it has struggled to make inroads in Peru and Ecuador where SABMiller has 91 and 96 percent market shares.
"Generally, their strategy to come in with greenfield sites has not worked well, as in Peru and Ecuador, but where they have acquired existing breweries they have done well such as in Bolivia," said the group's Latin American President Barry Smith.
AmBev has a 7.2 percent share of the Peruvian market and 3.5 in Ecuador, and has been dropping prices to gain market share, while SABMiller has decided to withdraw its economy brand Dorada to focus on mainstream and premium brands. The group earns a quarter of its Latin American profits in Peru.
AmBev entered the Peruvian market in September 2005 with its Brahma brand while privately-owned Ajeper started brewing its Franca beer this August, both pricing their economy segment beers 10-20 percent below SABMiller's mainstream brands.
Analysts say the significance of Peru is that it gives an insight into what might happen if competition arrives in the more important Colombian market. AmBev with two-thirds of the world's No 4 beer market in Brazil has made no Colombian move, but both eye each other over the Brazilian border.