Diageo in African link with Heineken

Diageo, the world's largest spirits group, has unveiled details of a new South African joint venture with Heineken, the leading premium beer group.

Diageo, the world's largest spirits group, has unveiled details of a new South African joint venture with Heineken, the leading premium beer group.

Paul Walsh, the chief executive of Diageo, has long expressed his admiration of the Heineken business and the launch of a South African joint venture is an important development between the two companies.

Mr Walsh believes the two companies could enjoy significant synergies when marketing and distributing their respective ranges of premium drinks. He believes Diageo's spirits portfolio is a natural fit with the Heineken brand, which is sold as a premium export beer.

Diageo and Heineken announced yesterday that the new company, which will combine their sales and marketing operations, will be called brandhouse. It will have sales of about £270m. The launch follows last year's acquisition by Diageo and Heineken of a 28.9 per cent stake in Namibia Breweries, the southern African beer business. Combining their sales and marketing operations was given regulatory approval in April, allowing the two groups to press ahead with the joint venture.

The deal will allow the company's sales force to offer both supermarkets and bars a portfolio of brands combining Heineken and Guinness with Scotch whiskies such as Johnnie Walker, Bells and White Horse. Diageo's other spirits brands such as Smirnoff and Captain Morgan rum will also be included.

The new operation will challenge SABMiller in its own domestic market where it has always dominated. However, as consumers develop more expensive tastes, Diageo and Heineken believe it can challenge SABMiller's dominance in the premium sector. Simon Litherland, the brandhouse managing director, said: "South Africa is an incredibly exciting market for us. Overall growth in the liquor industry has been minimal for some years now, but the premium sector is growing very fast."

The drinks industry will be watching the new joint venture closely. How successful the venture is may give more clues as to whether Diageo and Heineken plan to forge similarly close links in other markets around the world.

Diageo styles itself as the world's leading "premium drinks business" and has completed an integration of the Guinness brand into its sales and distribution network for its spirits brands. The company has not ruled out expanding into lager to complement its existing portfolio but would shy away from expensive acquisitions. It has long taken an interest in wine but has resisted many acquisitions for being too expensive.