Tough task seen for Brazil beer giant AmBev in Peru

www.forbes.com Reuters, 02.20.03, 11:24 AM ET

Food  Latin America   By Teresa Cespedes LIMA, Peru, Feb 20 (Reuters) - Brazilian beer giant AmBev <AMBV4.SA>(nyse: ABV - news - people) faces an uphill battle as it squares off against Peru's Backus y Johnston <BKJi.LM><BKJa.LM>, which controls almost the entire beer market in this poor nation, analysts said. AmBev announced this week it would spend $38 million in Peru in the coming year to set up a brewer and distribution network, which would be online by the first half of 2004. "AmBev has a tough road ahead because it is entering a (country) where one brewer controls 99 percent of the market and has well developed distribution channels," Centura SAB brokerage beer analyst Gabriela Galvez told Reuters. Colombia's top brewer, Bavaria <BAV.CN>, owns 51.55 percent of Backus' common voting shares. Venezuela's Cisneros Group owns 22.3 percent, while Peruvian group Bentin has 15 percent of Backus. The rest is held by small Peruvian shareholders. Banco de Credito analyst Victor Hugo Soto said the arrival of AmBev, the world's fifth-largest brewer, in Peru could be part of a strategy designed to crack Bavaria's domination of the Andean region. "I think their idea is to approach, from Peru, Bavaria's hold in Panama, Colombia, Ecuador and Peru to be able to, at a later date, negotiate with the Colombians," Soto said. AmBev sells popular brands Brahma and Antarctica in Brazil, and also has market share in Argentina, Paraguay, Bolivia, Uruguay and Venezuela. Backus, worth an estimated $1.5 billion, reported an 83-percent jump in 2002 earnings to $62.3 million compared with the previous year. Interest in the top brewer in Peru's $400 million beer market triggered a row last year involving Backus stakeholders Bavaria, Cisneros, and fellow Venezuelan group Empresas Polar. That battle was settled in December 2002 when Polar sold its 24.6-percent stake to Bavaria, which is a partner of Cisneros in a Colombian television station, for some $568 million. According to AmBev, people in Peru -- a poor country where more than half the 27 million population lives on $1.25 or less a day -- drink an annual average of 22 liters per person, much lower than Brazil's per capita 50 liters. Backus makes top Peruvian beers Pilsen, Cristal and Cusquena, among others. "Backus' brands are well positioned and there is also the whole issue of acquired tastes," said Banco Wiese Sudameris analyst Guillermo Kaelin. "Consumers are loyal to brands and flavors ... In Peru, Corona and Heineken don't get the same reception (as Peruvian beers)," Galvez said. Analysts also said that AmBev's entry could set off a price war in a market seen as ripe for growth. AmBev head Magim Rodriguez told local newspaper Gestion this week that beer prices in Peru "were a little high for people's buying power."