The food & beverages industry is positively affected by lower interest rates and higher economic growth rates. After many years of stagnant and even negative volume growth, SA Breweries' volume began growing in 2003/2004. In other words, local beer volumes "recoupled" to the economic cycle.
Volume growth last year was about 3% and growth of about 4% is expected this year. This is good, but far from the exciting days of the 1970s and 1980s, when beer volumes grew at a multiple of GDP. SAB is unlikely to return to those growth rates because one of the main growth drivers in those days was preference switching by black consumers from sorghum to malt beer. This growth driver has largely run its course and sorghum beer consumption in SA, though relatively low, has probably stabilised. Nevertheless, SAB last year announced a R5bn capital expenditure programme, which will increase its capacity.
Malt beer consumption in SA, at about 56 per capita per annum, isn't especially high in world terms and pales into insignificance beside the Czech Republic, for example, where per capita consumption is more than 150 per annum.
The global beer industry kept consolidating. The year's biggest news was the merger between Belgium's Interbrew and Brazil's Ambev to form Inbev.
On a global scale, SABMiller experienced mixed fortunes, especially in China, the world's fastest-growing beer market. SABMiller took a minority stake in Harbin Brewery in the northeast of China, but failed to take out the remaining shareholders and let Anheuser-Busch buy it from under its nose. This disappointment was sweetened by the tidy profit it made on disposing of its stake to A-B.
Any negative sentiment flowing from the Harbin failure was more than compensated for by the turnaround of Miller Brewing in the US. SABMiller announced this during the first institutional site visit to Miller headquarters in Milwaukee in late September 2004. One of Miller's biggest problems before its acquisition by SAB from Altria (formerly Philip Morris) was its alienation from its critically important independent distributor base. Relationships between Miller and its distributors had been allowed to deteriorate badly.
These and other problems have now largely been rectified by Miller Brewing president Norman Adami, whose previous function was to successfully run SAB in SA under difficult economic conditions.
This confluence of events - the Inbev merger and Miller's turnaround - conspired to antagonise A-B, which embarked on a negative advertising campaign against Miller in the US and hasn't relented since.
The two largest local food producers - Tiger Brands and AVI - streamlined their businesses by unbundling noncore assets to their shareholders. In Tiger's case it was Spar, and AVI unbundled glass packaging company Consol.
Tiger Brands shareholders have a lot to smile about - though the recent price performance may have been less than stellar, they received Spar shares last year and about five years ago also received Astral Foods shares in a similar unbundling. So long-term Tiger shareholders have been well rewarded for their patience. Though management denies it, the possibility of a further unbundling - this time of pharmaceutical company Adcock-Ingram - may take place.
