SABMiller plans $1.8bn investment in South America

SABMiller is to invest $1.8bn (£914m) in its South American unit over five years after seeing its strategy of transforming the image of beer, once viewed as a poor man's drink in the region, start to pay off.

The brewing giant acquired the Colombian brewer Bavaria, along with its operations in Peru, Ecuador and Panama, in October 2005 and has since set to work to take market share away from spirits and other alcoholic drinks.

The move catapulted SABMiller into the lead position for beer in each country, including a 98 per cent share in Colombia, where its lead brand, Aguila, enjoys 46 per cent of market share. However, compared with Europe and the US the amount of beer consumed per head is relatively low, giving the company a strong opportunity for growth. In Colombia, 44 hectolitres are consumed per person each year, while in Peru and Ecuador this falls to 32 and 30 and compares with an average of 75-80 across Europe and 90 in the UK.

Mark Luce, the senior vice-president of marketing for the company in South America, said one of the key issues has been branding. Beer was being sold in bars with unpleasant environments where women were unlikely to venture, there was little refrigeration and no aspirational appeal, he said.

"We have inherited strong regional brands but we needed to reinvigorate them and develop a national mainstream portfolio," he said. "Beer has not been seen as the drink of choice at parties but we are changing that perception and showing that beer is an appropriate drink for upmarket occasions."

The company is increasing refrigeration, which stands at just 30 per cent in Colombia, to make the idea of a cool beer more appealing and is also making use of the bright yellow and red colours of Aguila in bars, to make the beer stand out and appear available. Some bars have been branded Aguila bars with yellow walls and posters everywhere.

In Peru, the company has re-launched its leading beer Cristal with a new bottle, increasing its size from 620ml to 650ml. SABMiller intends to do the same with the beers across the other three countries over the next 15 months and is spending about 20 per cent of its investment on marketing.

The strategy is having an effect. The amount of beer sold in the region rose 12 per cent in the third quarter.

Globally SABMiller reported a higher-than-expected 10 per cent rise in beer volumes over the quarter, news which sent its shares up 5 per cent, making it the biggest riser in the FTSE 100 index. Analysts at Investec said: "The new engine of growth, South America, is clearly firing on all cylinders, Europe was boosted by exceptionally favourable weather and Africa has delivered its best growth for years in the important summer selling season."

On the downside, the London-based group admitted that it had suffered from stock shortages in South Africa due to disrupted supplies of raw materials and glass.