Diageo enters sorghum beer segment
That’s an interesting move. SABMiller got out of sorghum beer production in South Africa over a decade ago and now Diageo is getting into it. The world’s leading drinks company on 28 January 2013 said it will acquire a 50 percent interest in a joint venture, co-owned by India’s Vijay Mallya, for USD 36 million (EUR 26 million).
According to the lawyers Herbert Smith Freehills, who advised on the deal, Diageo and Dr Mallya are also considering an extension of the joint venture to other emerging markets in Asia (other than India) and Africa.
On November 9, 2012, Diageo and Dr Mallya entered into a memorandum of understanding to form a 50:50 joint venture, which would own United National Breweries’ (UNB) traditional sorghum beer business in South Africa.
The transaction is conditional on consent from the South African competition authority and is expected to complete in the first half of this year.
Sorghum beer – also called “tradition beer” – is estimated to account for 15 million hl of annual consumption in South Africa. That’s half the volume of “clear” beer, i.e. European type lagers. However, industrial production of sorghum beer only represents 30 percent or less of consumption as the bulk of it is still homebrewed.
With six breweries across South Africa, down from 18 a decade ago, UNB dominates the traditional beer business. It is the successor to National Sorghum Breweries (NSB), a failed Black Economic Empowerment company, of which it took control in 1996.
In 2000, UNB also took over Traditional Beer Investments, the sorghum division of then SAB, because SAB did not believe in a profitable future for commercial sorghum beer. Although UNB’s Indian owners have frequently said that they turned the business round, profits must have been wafer thin most years as volumes have declined consistently.
UNB brews six different brands, including Chibuku, which is found throughout Africa, where it is produced by different companies.
The nature of traditional beer, in that it is an actively fermenting product with a very limited shelf life, necessitates on-the-ground and hands-on management requiring a decentralised operational base.
While Heineken refrains from brewing sorghum beer as it is a comparatively low margin business, SABMiller is actively involved in sorghum beer brewing in several African markets in an effort to steadily move consumers away from homebrew to commercial brews. SABMiller brews Chibuku in Zambia, Malawi, Botswana, Mozambique, Swaziland, Tanzania and Ghana as well as in Zimbabwe through its joint venture, Delta.
