Diageo and AB InBev near RTD licensing deal in South Africa as Competition Commission stamp their approval

South Africa’s Competition Commission on Friday gave its green light for a partnership deal between AB InBev and Diageo in South Africa.

South African Breweries (SAB), the local unit of Anheuser-Busch InBev will get the franchise rights to manufacture, market and distribute Diageo’s Smirnoff ready-to-drink (RTD) brands in South Africa. The licensing deal includes Smirnoff Storm, Guarana, Spin Cooler, Pine Twist, and Berry Twist but excluding Smirnoff vodka. SAB will also produce Guinness products but excluding Guinness Foreign Extra Stout and Guinness Malta brands, which would still be imported from Ireland.

The Competition Commission said it will recommend that the country’s Competition Tribunal approve the deal despite a likely further concentration in the country’s flavoured alcoholic beverage (FAB) market as a result. The commission noted that Diageo’s Smirnoff RTDs currently account for about 10% of the market, with volumes set to grow if AB InBev’s SAB unit takes control.

“Such increase in volume will benefit the consumers as the Smirnoff RTDs will be widely available and this will present better consumer choices,” the Commission said.

The commission said that while the merger raised a material competition overlap in the market for the manufacturing and supply of flavoured alcoholic beverages (FABs), on the whole, the proposed transaction is unlikely to distort competition and have any notable effect on the prices of Diageo and SAB’s FABs post-merger as the parties will still be constrained by other brands.

According to the Commission, the FAB market in South Africa is highly concentrated with Distell being the outright dominant player, followed by SAB and third Diageo.

The deal still needs final approval from the Competition Tribunal.

Negotiation on the deal started about a year ago and it comes as Diageo looks to focus on its premium spirits portfolio in the country. The RTDs were previously part of a joint venture between Heineken NV, Diageo and Namibian Breweries, which was dissolved in 2015.

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