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Expansion on Tap.

Brazil's AmBev goes international.

COMPANHIA DE BEBIDAS DAS AMERICAS (AMBEV) SITS AS THE planet's fifth-largest beverage company and the fourth-largest beer producer. Last year's US$2.3 billion merger of Brazil's two biggest beverage firms, Companhia Antarctica Paulista and Companhia Cervejaria Brahma, gave the resulting company, AmBev, its newfound bragging rights.

The two giant breweries long had dominated their national market, duking it out in a bid to claim the No. 1 spot in Brazil. They are now united in a mega company selling beer in 25 nations, including Japan and Germany, and using its new muscle to place the Brahma and Antarctica brands on store shelves in neighboring South American nations. Although its core market is overwhelmingly in Brazil, AmBev in recent months has stepped up activity in Argentina, Uruguay and Venezuela.

"In an ever more globalized economy, companies triumph through global positioning," says Marcel Telles, co-chairman of AmBev's board of directors. "New technologies and competition from international companies demand, above all, a scale that allows us to face up to the competition."

AmBev's aggressive expansion began in earnest last year after it slashed Brahma's price tag by 50% in Argentina to grab market share from local brewery Quilmes. Then, in September, the Brazilians showed an eagerness to reach beyond their borders by buying Salus, Uruguay's second-biggest beverage maker and brewery, in a joint deal with a French partner Danone. AmBev is also set to pay $45 million for a 95% share of Uruguay's Cerveceria y Malteria Paysandu (Cympay), which controls a quarter of the Uruguayan beer market through its Nortena and Printz brands.

Some analysts predict AmBev will enter the beer market in Paraguay and Bolivia. Others say it might eat up two more brands: Bavaria in Colombia and Compania Cevecerias Unidas (CCU) in Chile.

"That was the principal motivation behind the Brahma and Antarctica merger--to be able to compete in a market characterized by the formation of international blocs," says a company news release, referring to Mercosur and the Free Trade Area of the Americas. Although AmBev's expansion is likely to be restricted to South America for now, it is also well placed for a move into North America, via Canada.

As part of the merger, the company was obliged to sell its Bavaria brand, which holds almost 5% of Brazil's beer market. Canada's Molson purchased Bavaria for $98 million in a deal so friendly that some industry observers reckon it could presage AmBev's seduction of Canadian beer lovers. In Brazil, Molson will have access to AmBev's huge distribution network for up to 10 years.

A keg up on the world. Yet global expansion is only part of the beverage company's new strategy. Industry analysts say that by combining Brahma and Antarctica's resources and expertise, AmBev is creating a market stranglehold in Brazil that could be worth $10 billion a year. If industry estimates are accurate, the company will be toasting a rise in domestic beer consumption--even though Brazilians are more moderate drinkers than other South Americans.

Brazil cans, bottles and barrels 8.2 billion liters a year, behind only the United States (23.6 billion liters), China (15.4 billion liters) and Germany (11.7 billion liters)--but the average Brazilian in 1999 consumed just 48 liters of been That's just a drop in the stein compared to the most spirited of all, the Czechs, who guzzle an average 163 liters annually, according to a report by London-based beverage consultancy Canadean Limited.

But Brazil's beer consumption is expected to rise in 2001 in tandem with overall economic improvement. Experts say that if Brazil's economy grows a projected 4%, beer drinking will climb 6% to 8%.

Since the merger, AmBev has also enhanced its domestic market share through an improved distribution network that could save it $250 million this year, says Gustavo Hungaria, an industry analyst with Banco Pactual in Rio de Janeiro. And the beer titan is helping retailers push its top three brands--Brahma, Antarctica and Skol--at the same time it supplies thousands of bars and restaurants with special coolers that chill beer to below zero in a nation where most drinkers demand their brew be estupidamente gelada, or "stupidly cold."

These strategies have already paid impressive dividends. AmBev, which held a 72% percent share of the domestic beer market, saw its sales grow 4.7% in the third quarter of 2000. Softdrink sales, anchored by the hugely popular Guarana, rose by an even more impressive 9.6%.

None of this has pleased the competition: Kaiser and Schincariol. Kaiser officials refuse to comment on their struggle with AmBev but hinted that the playing field could become more interesting. A company representative says she would not be surprised to see Holland's Heineken increase its 15% stake in Kaiser, a move that would give the Dutch brewery a firm foothold in Brazil.

"There is a lot of talk that it [Heineken] wants to increase its participation," says Hungaria. "Heineken is definitely interested."

The rise of AmBev and its beer empire is perhaps not surprising in a nation where neighborhood bars in major cities vie for a coveted chopp, or draft beer, award each year. Last year's victor in Rio de Janeiro, Bar Bracarense, is little more than a hole in the wall with cheap plastic stools and dilapidated bathrooms. Still, it was spotlighted in a New York Times article on the world's best bars. Good beer is that important in Brazil.

Whether AmBev can provide award-winning beer for its consumers, from the elderly men who knock back a brew on a Rio street corner to the trendy female models who pose with a bottle of Brahma in the cafes of Paris, remains to be seen. But the company is doing so well it may not matter.

"Should one of the bigger names decide to enter the Southern Cone market, they'll have to reach some agreement with AmBev," says Javier Mata of Merrill Lynch.
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Publication:Latin Trade
Date:Apr 1, 2001
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