Heineken’s R7-billion SA plant

Heineken is to be brewed in South
Africa at the R7-billion Heineken
brewery currently under construction
south of Johannesburg.
(Image: Heineken)

An artist’s impression of the new
South African Heineken plant.
(Image: Heineken)

Amstel will also be produced in South
Africa for the first time since 2007, when
Heineken terminated SABMiller’s licence
to brew the popular beer.
(Image: Heineken)

Janine Erasmus

In a move that tests the dominance of the well-established SABMiller, Heineken NV, manufacturer of one of the world’s most popular premium beer brands, is building its first South African brewery at an estimated cost of R7-billion. The plant is located in the Sedibeng area southeast of Johannesburg.

The brewery will be three-quarters owned by Heineken with the remaining 25% owned by its partner in the venture, British-based Diageo, which is the largest multinational beer, wine and spirits company in the world.

Heineken’s choice of location will result in a massive boost for the region. “We were very aware that southern Johannesburg is an area that will benefit enormously from new commercial investment, which will in turn assist and enable social and economic progress in the whole area,” said Heineken’s regional president for Africa and the Middle East, Tom de Man. “We, our partner Diageo, and our local joint venture business partner Brandhouse, consider ourselves part of that process.”

Local and provincial government has come out in strong support of the venture, especially since it is expected that the brewery will create 225 permanent new jobs and make many more service-related employment opportunities available. All new staff will receive extensive training in South Africa and abroad where necessary.

Brewing the world’s best brands in SA

The new brewery, says Heineken, will have an annual output capacity of three-million hectolitres, with built-in potential for expansion, and will produce a variety of brands owned by the two companies. Heineken’s two major brands are Amstel and the eponymous Heineken, while Diageo owns Guinness and Windhoek Lager. In addition, the plant will produce ready-to-drink beverages similar to the popular Smirnoff Ice, which is a member of the Diageo stable.

Diageo also owns some of the world’s favourite wine and spirit brands including Johnny Walker, José Cuervo tequila, Bell’s, Captain Morgan, Dom Pérignon and Moët & Chandon. In South Africa these brands are distributed by Cape Town-based Brandhouse, which was established in 2004 specifically to market and distribute Diageo, Namibia Breweries and Heineken’s brands locally.

Work on the brewery is currently underway and construction, which is overseen by an experienced local Heineken management team, is expected to be complete by the end of 2009. A second site in the Ekurhuleni municipal area, east of Johannesburg, was also under consideration, and may yet be used by Heineken for other operations, possibly as a distribution centre.

Heineken, Diageo and Namibia Breweries are to embark on a second business venture which will see them combining their beer, cider and ready-to-drink operations into one company. The two major partners will each own 42.25% while Namibia Breweries will take a 15.5% stake.

Heineken’s investment in its two new initiatives will be around R3.1-billion ($412-million), while Diageo will invest R1.5-billion ($199-million), said the two companies in a joint statement.

Taking on the might of SABMiller

The new Heineken brewery will be the only such facility in South Africa not owned by rival SABMiller, which has successfully seen off numerous challenges over the years. In fact, the only brand to achieve any degree of success in the South African premium beer market is Diageo’s Windhoek, brewed by Namibia Breweries. The brand has not yet cracked the mass market, however.

In 2007 Heineken dramatically terminated SABMiller’s 40-year-old licence to brew Amstel after initiating an arbitration process following SABMiller’s $7.8 billion (R59-billion) acquisition of Colombian brewer Grupo Empresarial Bavaria, which in turn had acquired 15% of SABMiller.

Heineken objected to the bi-lateral acquisition, saying that SABMiller’s ownership had changed to a significant degree and this could be considered harmful to its own interests. It consequently applied to end SABMiller’s Amstel licence and the International Chamber of Commerce ruled in Heineken’s favour.

At the time Amstel accounted for 9% of SABMiller’s beer sales in South Africa and, according to Heineken, South Africa is one of Amstel’s biggest markets. Despite the setback SABMiller has focused on its own premium brands such as Hansa Marzen Gold, Peroni Nastro Azzuro and the recently acquired Grolsch, to offset some of the revenue loss.

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