Colombian Drunk-Driving Crackdown Slows SABMiller GrowthMatthew Bristow
The Colombian government’s drunk-driving crackdown, which has included fines of up to $14,000 and jail sentences as long as 18 years, is taking a toll on the nation’s biggest beer seller: SABMiller Plc.
A series of drink-fueled accidents in the run-up to Christmas, including one case of a motorist who mowed down nine people in southern Bogota, provoked a national outcry and caused President Juan Manuel Santos to denounce “the criminal cocktail of alcohol and gasoline.” The tougher rules, which SABMiller supports, led to lower-than-expected drink sales in December and January, according to Grant Harries, president of Bavaria, the London-based company’s Colombia unit.
“In December, this latest enforcement -- and the level of penalties applied to drinking and driving -- has placed the alcohol industry under a lot of pressure,” Harries said in an interview last week in Bogota. “What we do see is that its impact seems to be reducing, but initially everybody just really stopped their usual consumption patterns.”
December is the biggest month for Colombian beer drinking, as workers go out to spend an end-of-year bonus that employers must pay them by law. And SABMiller is the biggest beneficiary of those sales: It accounts for 98 percent of the nation’s beer purchases, and the country is its biggest single source of profit. Globally SABMiller is the world’s second-biggest brewer, after Anheuser-Busch InBev NV.
This time around, as Colombian drinkers adjusted to the new policy, the typical sales surge in the second half of December didn’t materialize, Harries said.
“It’s a peak month,” Harries said. “It starts straight after they get their payout, and then it really takes off. But it didn’t take off, and this was the impact that we were feeling.”
February sales are “looking better,” Harries said. It’s also unclear whether the effect of the new measures will wear off over time, he said. The legislation, which includes lifetime driving bans for some offenders, was signed into law by Santos on Dec. 19. Bavaria runs its own responsible-drinking campaign alongside the government’s.
Bavaria’s beer sales will probably grow by 1 percent to 1.5 percent in volume in the year through March 2014, Harries said. That’s a slowdown from a rate of 3.2 percent the previous fiscal year. Sales also have been hurt by highway blockades set up by coffee growers and other producers, which are protesting the government’s farm and trade policies. That had a “huge impact” on distribution, Harries said.
Even with the slowdown, the company gained a larger portion of alcohol sales in the Andean nation and saw growing demand for premium beers. Bavaria’s share of the alcohol market -- measured by liquid alcohol equivalent, or LAE -- rose for a third straight year, as drinkers switched from rums and wines, according to Harries. That helped push December beer sales to a record level, despite the lower-than-expected demand.
Annual Colombian beer consumption rose 19 percent to 43 liters (11 gallons) per capita over the past decade. That level remains low compared with the country’s neighbors, partly due to a culture of not drinking on business days, Harries said.
“Colombia has a very low frequency relative to places like Brazil and Venezuela,” he said. “There’s very high intensity over the weekends, but midweek we’re very low.”
Bavaria sees room to grow in premium beer, a market that’s dominated by its Club Colombia brand. The sector represents about 6.4 percent of Colombia’s beer market, compared with about 10 percent in neighboring Peru, Harries said.
At the even higher end -- the so-called super-premium market -- Bavaria faces competition from imported brands produced by Heineken NV and Grupo Modelo SAB. Bogota Beer Co., the country’s main craft beer producer, also competes in the segment. Bogota Beer, which sells craft beers in its 20 pubs as well as in supermarkets, will open a new brewery this year that will more than triple its capacity, founder Berny Silberwasser said in an interview this month.
This super-premium market currently accounts for less than 1 percent of the beer drunk nationwide. SABMiller itself competes in the market area with imported brands such as Peroni and Grolsch.
As Bavaria adjusts to the drunk-driving crackdown, it’s looking to get a sales boost from the 2014 World Cup soccer tournament. Colombia’s national team is ranked fifth by FIFA, the international soccer governing body, giving fans more reason to tune in -- and drink. SABMiller’s Aguila beer is the national team’s sponsor.
“Please let them do well,” Harries said. “That would be fantastic for per capita consumption for sure.”