AB-InBev receives approval to market Diageo’s brands in South Africa

South Africa | In early September 2019, AB-InBev’s local unit SAB has won regulatory approval to take over the distribution of Guinness – under the condition that if a secret threshold of Guinness sales is reached, it will have to be brewed locally.

Apart from Guinness, SAB has obtained the rights to produce and market Diageo’s Flavoured Alcoholic Beverages (FABs), including Smirnoff-branded flavoured drinks.

As a condition of its approval – which effectively removes a competitor from the market – the Competition Tribunal stipulated that SAB must start producing Guinness draught in South Africa, if a “feasibility threshold” of sales is reached within the next three years. The Guinness consumed in South Africa is currently imported from Ireland.

Business Insider, a local news outlet, understands that the threshold is 20,000 hl beer. At the moment, Guinness’ sales are miniscule as it competes with SAB’s own Castle Milk Stout brand. South Africans would have to really take to the dark stout for that provision to kick in.

It is assumed that AB-InBev/SAB is really after Diageo’s 11,000 or so fridges, installed in bars across the country, and its Flavoured Alcoholic Beverages (FAB), like Smirnoff Ice. Diageo’s FABs are priced significantly higher than SAB’s own offerings in that category (the Brutal Fruit and Redds ranges).

The commission gave its approval, although it noted the deal raises a number of competition concerns. “The FAB market is highly concentrated with Distell being the outright dominant player, and the proposed merger will likely create further concentration in this market,” the Commission’s statement reads. The tie-up between AB-InBev and Diageo will substantially alter the structure of the FAB market as it is essentially a combination of the second- (SAB) and the third- (Diageo) ranked players.

In 2015, Diageo terminated its local partnership with Heineken, as the world’s largest drinks company sought to wield more control over its sales in South Africa. Looks like Diageo’s earlier hopes for increased sales never materialised, and it felt compelled to patch up with SAB.