Not all beer and skittles for AB InBev

Even by South Africa standards, the past 15 months have been pretty rocky.

 

The firing of the country’s internationally respected finance minister was a constant possibility, until it became a reality. That reality included a ratings downgrade that ensured a weak economic outlook became a much grimmer one.


Further north it was increasingly evident the Africa growth story was losing its lustre. There was going to be no commodity-spurred short cut to sustained growth and development.

In hindsight, perhaps October 2015 wasn’t the best time for the largest beer group in the world to launch a takeover bid for the second-largest one, SABMiller. But if AB InBev is suffering any buyer’s remorse, its frontman in Africa is keeping it well hidden.
Brazilian-born Ricardo Tadeu (40) says he and his company are very happy they took the leap into Africa.
"We’re confident about the mid-to long-term perspective," says Tadeu, who arrived in SA in October 2016. "Of course we didn’t expect volumes in Africa to drop, but that doesn’t change our confidence in the region."

 

Tadeu Ricardo

 

It helps that Tadeu and the 3G Capital team behind the 30-year project to create the largest beer group the world has ever seen are all from Brazil, a country that competes with SA in the political turmoil scales.
"Political uncertainty is what we know. On a 20-to 30-year perspective, Africa is where the opportunities lie," says Tadeu.
What the AB InBev management team — and the rest of the world — are far less familiar with is the level of political uncertainty in previously stable countries. The US, the EU and Britain are all looking a little less familiar now than they were 15 months ago.
The drama around the unexpected outcome of the Brexit vote in June 2016 added several billion dollars to the already steep cost of the SABMiller purchase because of a decision to hedge against possible weakness in the dollar while the deal was being finalised.
All of this adds to the challenge facing AB InBev management as it tries to repeat the same sort of performance notched up after every acquisition since Brahma in 1989. The most spectacular performance was achieved following InBev’s acquisition of Anheuser-Busch in 2008.

 

Word is that SABMiller suppliers are already feeling the chill winds of change caused by this challenge. Certainly, SABMiller did not have a reputation as an easy customer. With a virtual monopoly in the beer market it was able to dictate terms to most of its suppliers. Now word from some is that those terms are about to be made even tougher. Those who can’t manage are apparently being offered access to finance from an international bank.
But it looks as though talk of 150-day terms has more to do with AB InBev’s tough-as-nails reputation than reality.

Tadeu says while the group’s scale gives it the opportunity to negotiate favourable payment terms, only a small percentage is on more than 120 days.
Globally, the group has thousands of suppliers and though procurement is done on a centralised basis, the same policy is not always applied, with size being a consideration. The procurement policy includes an e-option that allows companies hoping to supply the mega-brewer to participate in online auctions.
The new head of AB InBev Africa says the opportunity to supply the group does provide companies with an ability to scale up, and some are prepared to concede payment delays for large orders.
"But we’re not here to destroy businesses; we’re building something in SA," says Tadeu, adding that as part of the agreement with the competition authorities, AB InBev is helping to develop small suppliers.

Still, critics see the tougher payment terms as evidence the group is more banker than brewer and is determined to use suppliers to provide large chunks of interest-free credit to finance its growth.
The only supplier-related conditions in the agreement with the competition authorities dealt with support for BEE suppliers.
To date, suppliers have not asked the competition commission for protection against tougher supply terms being enforced by a more powerful entity.
Given government’s own dismal showing on this score, it might be difficult for economic development minister Ebrahim Patel to include it as part of the public interest issues to be considered in a merger.

@BDLIVE South Africa