Diageo ends 11-year relationship with Heineken in Southern Africa

Dutch beer brewer Heineken and Diageo, the world’s largest spirit maker, have agreed to end their long-standing relationship in Southern Africa after agreeing to “disentangle joint ventures” across Namibia and South Africa.

Both alcohol manufacturers end an 11-year cooperation before the end of 2015 after Diageo felt its growing dominance of the South African market offers the right foundation to progress alone. Diageo is famed for producing major liquor brands like Johnnie Walker and Smirnoff. It also owns Guinness, the world’s largest producer of black beer. These, Diageo said, had elevated it to market leader in spirits in South Africa with a 40 percent share. According to Reuters, South Africa is Diageo’s fifth largest spirits market by volume.

It has therefore cut out a deal with Heineken that will return a net cash of 2.5 billion rand ($198.4 million) to its coffers. In return, Heineken will increase its stake in DHN Drinks—the entity holding the licences for the drinks portfolios—to 75 percent, a report by Reuters confirmed. Namibia Breweries Ltd (NBL) will remain in control of the 25 percent left. The world’s third largest beer brewer will also buyout Diageo’s 15 percent holdings in NBL as it moves to forge a new alliance with the Namibian beer producer.

Heineken sees the Southern Africa beer market, particular South Africa’s as an attractive investment spot. South Africa remains the region’s hotspot for beer producers, with the market growing at 1.5 percent. Heineken will be keen to replicate the dominance it exerts over the West African market in the South.

A fiercer rivalry in the west

In Nigeria, West Africa’s biggest beer market, Heineken is the dominant player. Similar to its strategy in Southern Africa, it bought Nigeria’s biggest local beer maker in the Nigerian Breweries.

Despite intense rivalry from Diageo, its long-term partner in South Africa, it has managed to consolidate its position as the top alcoholic beverage firm, controlling 65 percent of the Nigeria’s beer market.

Guinness continues to hold a firm grip on the black beer market, and over the last two year has attempted to steal another niche for itself. When Orijin was officially launched in August 2013 many felt Guinness had cornered the bitters and “ready-to-drink” market completely from Heineken’s Nigerian Breweries. Orijin was expected to appeal to the modern African who wants to “enjoy the best things of life while still holding on to their African roots.” It was a highly underserved niche prior to Guinness’ entry. In recent months however, Nigerian Breweries has moved to hijack the emerging market.

Earlier this year, Nigerian Breweries launched Ace Roots as a reply to Guinness’ Orijin. Playing the second mover advantage to perfection, it identified and attempted to exploit the flaws of Orijin. Nigerians Breweries Sales Director, Hubert Eze, revealed during its launch that the Ace Roots is completely brewed, unlike the “mixed spirit” approach employed in producing Orijin. It also contained 14 herbs and Spices, unlike Orijin’s blend of flavours. He also moved to counter Orijin on healthiness when he claimed Ace Roots contained only a single cube of sugar, making it the first low sugar bitters made in Nigeria.

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