International Business : Brewer Mines Continent’s Thirst for Liquid Gold

Nobody said making beer in war-shattered Mozambique would be easy, but where there’s water, there’s a way.

And maybe there’s new profits for a big brewer hoping to expand across Africa, a continent most others see as a hopeless investment.

Anheuser-Busch? Miller? Heineken? No, and not Bass, Fosters or the big Japanese outfits, either.

Try South African Breweries, the world’s sixth-largest beer maker by volume, although it’s little-known off the southern tip of Africa.

The firm, known as SAB, is rapidly expanding northward, buying into money-losing breweries around the rest of Africa--and China and Hungary--as fast as cash-strapped governments privatize them. And it’s dealing with obstacles like outdated equipment and local officials who won’t turn on the water without a bribe.

The expansion marks one of the more striking examples of South African companies staking out foreign holdings following the end of anti-apartheid sanctions and the country’s new respectability under President Nelson Mandela.

“I was amazed last summer to see someone from South African Breweries at a wholesalers convention in the United States,” said Robert Weinberg, an industry analyst and former Anheuser-Busch vice president. “They were looking for a wholesaler to sell their beer in the United States. They’re very aggressive. I was impressed.”

The company denies any immediate plans to sell its brands in the U.S. But it has picked up stakes in the state-run breweries of Zambia, Tanzania and Mozambique and is talking with Angolan officials.

All were enemies of South Africa’s former white-minority regime, but all have been wrecked by decades of civil war or economic bungling and need investors. Yet poor infrastructure and stifling bureaucracy scare off most business people.

SAB isn’t scared. South Africa’s third-largest conglomerate, behind the Anglo-American mining and De Beers diamond giants, has a capitalization of $8.7 billion and controls 98% of the South African beer market of 23.5 million liters, the continent’s largest.

The flagship brand, Castle, was founded in the Johannesburg gold fields in 1895. An early advertising poster echoed the British imperial slogan, “Cape to Cairo,” and executives view the rest of Africa as their rightful backyard.

“For better or worse, we have some experience in Africa and find it a bit easier than some really high-tech companies might,” said Andre Parker, head of SAB’s Indol subsidiary that runs the African investments.

In Mozambique, where local brands such as Manica and 2M were almost always unavailable, Craig McDougall of SAB leads a $15-million joint venture that boosted output overnight.

He bought the formerly state-run brewery, then faced bribe-hungry officials who refused to turn on the water taps. So McDougall cut a deal with the fire department, supplying tires for trucks in exchange for two tankers of water a day.

Some of SAB’s African experience comes from getting around anti-apartheid sanctions. Castle and SAB’s other big brand, Lion, have sold throughout the region for years; they were brewed during the sanctions era in neighboring Swaziland and Lesotho.

Remember Rolling Rock? In the mid-1980s, the Pennsylvania-brewed brand had a following among U.S. college students, some of whom urged the Reagan administration to impose sanctions on South Africa. Little did they realize that SAB owned Rolling Rock through front companies--a fact uncovered when the brand was sold in 1988.

Today’s penetration is relatively straightforward. SAB buys into the local brewer, preferring a joint venture with government to minimize hassles. Outmoded machinery is replaced, production increases and hygiene and shelf life improve. Once demand for the local brand is met, the brewery begins making Castle and Lion.

Although the world’s big brewers may not be interested in down-at-the-heels countries like Mozambique, many have sniffed around South Africa. But none has cared to take on SAB, which has a strong distribution system.

Some, like Guinness, find it easier to let SAB brew their product under license. “I’d rather be with them than against them,” said Jim Doyle, director of Guinness’ southern Africa operation.

SAB’s Parker expressed caution about expanding too fast, but noted that privatizations only come along once.

“What they’re doing makes sense,” said Weinberg, the industry analyst. “They want to get a position before other people look into Africa. I think South African Breweries is on a roll.”