Waltzing the government – Comment
The Justice Ministry will follow a recommendation from CADE, as the country’s anti-trust agency is known, and open an investigation of AmBev’s executives, Mariana Tavares, the ministry’s anti-trust division chief was quoted as saying. The probe could result in civil charges against the executives.
The government’s action follows hard on the heels of another complaint against AmBev, this time by Brazilian brewers, who have requested that anti-trust regulators investigate the bottling policy of AmBev.
The Brazilian Beverage Association, or Abrabe, complained that AmBev has broken convention by launching their own one-litre beer bottle, thus taking market share away from brewers like Schincariol and Petropolis, which share a bottle pool of generic one-litre beer bottles that can be re-used.
Last month’s public spat between AmBev and the government was brought about by a July ruling by CADE, which said that AmBev’s customer loyalty programme “Tô Contigo” (which AmBev claim is similar to airline and other mileage programmes) was anti-competitive as it limited competition by discouraging retailers from stocking other brands.
The proceedings had been initiated in 2004 as a result of a complaint filed by Schincariol, AmBev’s competitor.
Considering that it has taken CADE so long to rule on the issue, we are probably right in assuming that the Brazilian anti-corruption authority was only playing to the gallery. It had to be seen doing something about Brazil’s endemic corruption and so it singled out AmBev, a beverage giant that controls nearly 70 percent of Brazil’s beer market.
However, if AmBev’s practices are considered anti-competitive according to Brazilian law, then AmBev should have shut up and paid up. After all, AmBev posted a net income of 1.38 billion reais (USD 748 million) during its second quarter 2009, up 34 percent from a year earlier. In other words, they can afford to pay the fine.
Yet, AmBev’s executives had to live up to their image of machete-swinging bullies. In AmBev’s second quarter statement, published 13 August 2009, they not only said that AmBev intended to challenge the fine in Brazilian courts. Based on the advice of their counsel, they added that they did not think it likely that they would lose in court against the government. Therefore they have not made any provisions for this fine in AmBev’s interim financial statement.
It takes some cheek to make such a public statement.
Also in their second quarter statement AmBev said that their average share of the Brazilian market climbed to 68.3 percent from 67.3 percent a year earlier, benefitting from the introduction of the one-litre beer bottle which helped boost sales – the self-same beer bottle which has made Abrabe submit a complaint (see above).
During the second quarter 2009 AmBev’s total drinks volume in Latin America rose 4 percent, with a 5.2 percent increase in Brazilian beer volume sold, the company said.
Net debt decreased to 8.76 billion reais from 10.7 billion reais at the end of 2008 as the company paid off 1.7 billion reais of promissory notes to Banco do Brasil SA in April. The company obtained a 400 million-real loan from Brazil’s state development bank, known as BNDES, in June to support investments at a new plant in the country.
While the second half of the year “should be better than we anticipated earlier in the year,” it will be “more challenging” than the first half, AmBev said. Higher expected investments in marketing and sales will weigh on earnings, the brewer admitted.
AmBev produce beer, soft drinks, teas, mineral water, and sports drinks. The company’s main brands are Antarctica, Brahma, and Skol. AmBev are the sole distributor of Pepsi products in Brazil.
