Diageo terminates Heineken JV in South Africa
Diageo has terminated its joint venture with Heineken and Namibia Breweries in South Africa and Namibia three years earlier than planned, taking distribution in house.
The UK drinks group will now form standalone entities to market and distribute its brands in the countries – a move Diageo claims will allow it to strengthen its investment in spirits.
“We have worked very successfully with Heineken and NBL (Namibia Breweries Limited) throughout our partnership, growing the beer business and establishing market leadership in spirits,” said Ivan Menezes, CEO of Diageo.
“From this leadership position we now believe that Diageo has the necessary scale to move to the next stage of growth for spirits, RTDs and our beer and cider portfolio in a focused, simplified ownership structure.”
Under the terms of the terminated deal, Diageo will sell its 42.25% equity stake in DHN Drinks and offload its 25% stake in Sedibeng brewery in Gauteng, South Africa, to Heineken. The group will also sell its 15% equity stake in NBL to Heineken.
Diageo has then agreed to acquire the remaining shares it does not already own in the sales and marketing joint venture – brandhouse Beverages Limited – making it a wholly owned subsidiary of Diageo.
The firm will receive approximately £128 million under the termination deal.
Diageo partnered with Henineken and NBL to set up the joint venture in 2004 to sell Diageo’s spirits, RTDs, ciders and Guinness, as well as Heineken and NBL’s beer brands.
In 2008, the joint was renewed under a 10-year term following the introduction of new brands and the construction of new production facilities, moving from a cost sharing structure to a cost and profit sharing agreement.
‘Critical mass’ gained
Diageo said the joint venture has allowed all parties to gain “critical mass” in South Africa, allowing them to “move forward with their respective commercial agendas”.
“For the past 11 years we have benefitted enormously from our close collaboration with Diageo and I would like to thank them for their valued partnership and wish them well for their future in the region,” said Jean-François van Boxmeer, Heineken CEO and Chairman of the Heineken executive board.
“Our new structure allows us to focus solely on the beer category and strengthens our platform for continued growth. We look forward to working with our longstanding partner Namibia Breweries and are excited about our future prospects in this important part of the global beer market.”
Diageo said South Africa is now its fifth largest spirits market by volume globally, with Johnnie Walker, Smirnoff and Captain Morgan occupying leading positions in the whisky, vodka and rum categories.
Having “outperformed” the category, Diageo said vodka, whisky and flavoured spirits will drive the value of the TBA market, however beer and RTDs will drive volume.