SOUTH AFRICA – The Competition Tribunal of South Africa has conditionally approved South African Breweries’ (SAB) proposed acquisition of franchise rights for Smirnoff ready-to-drink and Guinness-branded products from Diageo.
SAB is the local subsidiary of AB InBev, the world’s largest beer group while Diageo is the world’s largest producer of spirits, and owns brands such as Guinness, Smirnoff, Johnnie Walker, J&B and Captain Morgan.
Through the deal, Diageo will grant SAB an exclusive license to manufacture, market, distribute and sell Smirnoff Storm, Guarana, Spin, Pine Twist and Berry Twist.
The Competition Tribunal approved the transaction having stipulated the operations to be undertaken by both parties in regard to the deal.
Following the approval SAB will begin local production of Guinness draught and will continue to import 440ml cans until local sales volumes reach a level that will make local production viable.
However, the deal does not include local production of Guinness Foreign Extra Stout and Guinness Malt variations. SAB was rather granted an option to import these brands for the duration of the agreements.
In relation to the Smirnoff brands, Diageo SA will transfer 11,000 of its Smirnoff branded cooler to South African Breweries at fair market value. They will be required to meet specific growth targets in line with the growth of similar brands.
To ensure consistency of Smirnoff brand innovations and image with its global and South African spirit brands Diageo will retain creative oversight.
SAB will spend a specified portion of net sales to advertise and promote both the Guinness and Smirnoff brands to achieve the needed sales volume.
“However, SAB will still be able to have specific promotions in which the licensed brands and SAB brands can be sold and promoted as a combined offering for a limited duration,” the tribunal said.
The Tribunal’s approval has also instituted measures to regulate the flow of information between parties “to avoid inappropriate exchanges of competitively sensitive information”.
Andrew Murray, vice-president for finance at SAB and AB InBev Africa, said ‘’the licensing agreement is a great opportunity that will allow the group’s distribution capabilities to increase the availability of these brands for consumers and to drive profitable growth for the brands.”