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SABMiller Uses Success With `Holy Water’ to Target Ethiopia’s Beer Market

Ambo mineral water
October 9, 2010

Ambo
SABMiller Plc, the world’s second- largest brewer by volume, is using its success with Ethiopian “holy water” to encourage the country’s government to sell it state-owned breweries.

SABMiller has invested $20 million since last year buying Ambo, which bottles a strong-tasting, naturally sparkling water from a valley of the same name about 130 kilometers (81 miles) west of the capital, Addis Ababa. The water, named after the town, is sold locally as Ambo Tabel, which means holy water in Amharic, and is touted as a historical cure for ailments from diabetes to obesity, according to London-based SABMiller.

“We thought it would be a great business and great opportunity to enter Ethiopia,” Mark Bowman, the managing director of SABMiller’s African operations, said. “This water brand is probably the most powerful brand in Ethiopia, it’s as close to buying a holy water as one can get.”

The Ethiopian government’s Meta Abo, Bedele and Harar breweries, which the government said today are up for sale, hold a combined 37 percent market share, according to London-based Plato Logic Ltd., which estimates that Ethiopians drink about 3.8 liters of beer (1 gallon) on average each year compared with 10 liters in the rest of the continent.

The government is offering auction documents for bids for a joint-venture partner to run Meta Abo while the sale of Harar and Bedele breweries will take place before the fiscal year ends in July, Wondafrash Assefa, a spokesman for the government’s Privatization Agency, said by phone from Addis Ababa today.

Other Bidders

Habesha Breweries Share Co., a newly formed company, plans to submit a bid for Meta Abo, Eskinder Desta, a spokesman for Habesha, said in a mobile-phone interview today. Meta Abo may fetch as much as $55 million, Harar may be worth $25 million to $30 million and Bedele around $20 million, he said.

Ambo, of which SABMiller owns 68 percent, produces 35 million liters a year, accounting for 85 percent of the Ethiopian mineral water market, according to SABMiller. The brewer paid $21 million for the stake, according to the Addis Ababa-based Reporter. SABMiller Jonathan Oates declined to give details on the value of the transaction in an e-mailed response to questions yesterday.

SABMiller has improved technology and marketing and cut employee numbers down to 300 from 700 since buying what was a “defunct” business before it took over, Bowman said. The turnaround of Ambo has demonstrated the ability of SABMiller, started as South African Breweries, to “operate well,” Bowman said in an interview in Johannesburg.

This may improve chances for the 115-year-old brewer of Miller Genuine Draft and Castle Lager in bidding for state- brewing assets in a country that posted economic growth last year of 8.7 percent, he said.

Stumbled on Ambo

“You can’t ignore 80 million people,” Bowman said. “We’ve had a look over time at beer interests in Ethiopia that haven’t been available to us and we came across Ambo.”

Ambo, which consists mostly of Muslims and Christians, has about 50,000 residents and is surrounded by largely bare hillsides covered with small-holder plots. Emperor Haile Selassie used to bath in the hot springs that still fill a outdoor pool popular with tourists in the town center. About 44 percent of Ethiopians are Orthodox Christians and about a third Muslim, according to government statistics.

A plastic bottle production line is being commissioned for Ambo to grow volumes by cutting packaging and transport costs, Bowman said. It is also introducing Ambo Light, a “more lightly sparkling version,” which may widen the appeal of the water at the end of the month.

Grow to Scale

“Hopefully we can grow that business to some scale, it is still a relatively small business,” Bowman said. “I would expect that business to grow rapidly over the next two to three years,” adding he expects “double-digit” growth.

SABMiller’s partner in 18 African countries, Castel Groupe, dominates the Ethiopian beer market with its Dashen and Kombolcha operations with a combined 62 percent share, Plato Logic said. A seventh brewery is planned by Habesha, it said.

SABMiller bought three water businesses in Africa last year, including Voltic in Ghana and Nigeria, Rwenzori in Uganda, and Ambo. Africa’s water market is growing at 18 percent a year and has expanded to 4 percent of the company’s African sales in the past two years, Bowman said.

Africa accounts for about 10 percent of SABMiller’s sales and 12 percent of its profit before charges such as interest, tax and depreciation. Volumes in SABMiller’s Africa region grew at about 7 percent in the first quarter of the 2011 fiscal year, which Bowman said he expects to maintain for the rest of the year.

Source Bloomberg

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