Manufacturers

‘Torrid times’ in South Africa: Heineken suffers as Castle Light sales soar

01-May-2014
Last updated on 01-May-2014 at 12:15 GMT - By Ben Bouckley+
Heineken: Sweating on Castle Lite's success in South Africa (Aurimas/Flickr)
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Heineken admits it is under pressure in South African premium beer due to tough competition from market leader SAB Miller and its Castle Lite brand in particular.

The world’s third-largest brewer (by volume) released its Q1 2014 results on April 25.

Group revenue rose 3.4% to €4.038bn ($5.6bn) on an organic basis in Q1, but net profit fell 58% to 143 year-on-year to €143m.

Simon Hales, an analyst at Barclays Capital, asked CFO Rene Hoof Graafland about Heineken's problems in South Africa.

“On South Africa, clearly you’ve had a pretty torrid time there with the share loss,” Hales said.

“I’m just wondering given the increasing innovation we’re seeing there around flavored malt beverages…what are you looking to do to try and stymie some of that share loss?”

Replying to Hales, Hoof Graafland admitted that Heineken was under pressure in South Africa, but said this had to be seen in the light of growth for the company over the last three years.

“Obviously this is not a development we’re happy with. And so we will launch a couple of new propositions, but I’m not sure which ones have been announced or not, so in that sense I cannot tell you,” Heineken’s CFO added.

‘We get a lot of competition from Castle Lite’

Hoof Graafland noted that Heineken was not competing directly with market leader SAB Miller in the South Africa – it does so via the market’s second player, Brandhouse (a JV between Diageo, Heineken and Namibia Breweries), and is only present in the growth premium segment, where it is growing share.

Examples of Hale’s “flavoured malt beverages” could include Flying Fish lager (sold in Fresh Orange and Crushed Lemon varieties), released in South Africa last October.

“Now we get a lot of competition from mainly Castle Lite, which is coming from mainstream up into that premium segment, and for sure we will fight back,” Hoof Graafland said.

SAB Miller said in an April 15 trading update that its premium portfolio had benefited from strong brand and retail execution – with combined 10% full-year growth for Castle Lite and Castle Milk Stout.

Castle Lite competes head on with Heineken’s eponymous brand and Amstel, in South Africa, and an SAB Miller spokesman told us today that Castle Lite had been a “phenomenal success story – not just in South Africa but also across Africa”.

Hoof Graafland promised that Heineken would fight back in South Africa by “getting more consumer pool and making sure we build our brands in a premium way”.

Consumer confidence hits Vietnam beer sales

The executive also admitted that Vietnam – Heineken’s most important market in Asia-Pacific following its purchase of Asia Pacific Breweries – weakened its overall results in the region after a “disappointing first quarter”.

“Bear in mind that Q1 last year, we had 25% volume growth there, so there was a very difficult quarter to match. But we clearly saw that the Tết, the Vietnamese New Year was a bit disappointing,” Hoof Graafland said.

“We see it across the market, if you speak to other consumer goods companies there, and you see that consumer confidence is a bit lower – so the market is slowing down,” he added.

Vietnam’s General Statistics Office recently reported GDP up 4.96% in Q1 2014 compared with 6.04% growth in Q4 2013, but economists worry about weak domestic demand and slow bank lending due to bad debt.

“You see the currency weakening – that gives inflationary pressure which leads to lower or weaker consumer spending,” Hoof Graafland said.

“Within the market our performance is positive – within the quarter we won market share, very much driven by the Tiger brand and the rebalance in the portfolio. So Heineken is a little under pressure – Tiger and Larue are growing,” he added.

Related topics: Manufacturers, Heineken, SAB Miller, Beer, Wine, Spirits, Cider