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AB InBev’s legal battle over alcohol ban could be a p...

Business Maverick

BUSINESS MAVERICK

AB InBev’s legal battle over alcohol ban could be a presage of more to come

Khayalami Lounge at Duduza Tavern in Ekurhuleni. (Photo: Gallo Images / OJ Koloti)

AB InBev subsidiary SAB went out on a limb when it challenged the government ban on alcohol. While an extension of the ban on liquor sales may yet see the rest of the industry join the case, it appears that the giant brewer is interested in one thing and one thing only — profits.

For four years AB InBev subsidiary South African Breweries (SAB) has maintained the letter of its agreement with the Department of Trade and Industry (the dti) and the Competition Commission.

Ahead of the gigantic buy-out of SABMiller by AB InBev in October 2016, the Belgium-based brewer conceded to the dti’s every whim, smoothing the regulatory way and ensuring the competition authorities gave the local deal the green light.

The agreement signed with the dti included a commitment to invest R1-billion over five years in local agriculture, small enterprise development and social benefit. This was over and above the R1.1-billion that SAB planned to spend on transformation and investment over the period. 

While there has been some slippage in the past year, the brewer has largely upheld this side of the bargain. 

Where there has been slippage, however, is on the jobs front. The company committed to maintaining its 5,900-strong workforce and ensuring there were no merger-related job losses over the five-year period. 

However, in 2020 employment fell and the firm is short on its commitment.

In May 2020 InBev approached the Commission to request variations to the employment and investments conditions attached to the merger.

“The Merger Conditions [issued by the Competition Tribunal] have a clause which entitles SAB to apply to amend its obligations for Good Cause,” says SAB spokesperson Zoleka Lisa. “The alcohol ban severely impacts SAB’s ability to operate and is an Interrupting Circumstance as envisaged in the contracts.

She stresses that in terms of its agreements with government, SAB has not reneged on any of its commitments.

While “the Commission has engaged with InBev on various occasions and in good faith on its request no agreement has been reached,” says Competition Commission spokesperson Siyabulela Makunga. 

The moratorium on retrenchments expires this October. However, if the Competition Tribunal believes InBev has breached the conditions attached to the merger, and if no remedial plan can be reached, the firm may be liable to an administrative penalty of up to 10% of annual turnover (SA) or to the divestiture of part of the merged entity, says Makunga.

All of which makes SAB’s recent application to have the alcohol ban declared unconstitutional all the more alarming.

In court papers filed last week the brewer of Carling Black Label and Castle Lite told the South African government that “its obligations have been suspended with effect from the date of the impugned regulations”, according to Reuters.

This may give an indication of future strategy.

The decision to challenge the government’s third ban on alcohol, while supported by economic data and large sections of the South African public, was not supported by the liquor industry, which did its best to dissuade SAB from taking legal action against the government.

“SAB hasn’t read the room and the tone,” says one liquor industry insider.

The South African Liquor Brand Owners’ Association, which includes the likes of Distell, Diageo, Pernod Ricard, DGB and KWV, and the SA Liquor Traders’ Association, both distanced themselves from the SAB action.

“Distell has always affirmed its right to keep its legal options open,” says CEO Richard Rushton, “but we prefer to play a constructive, collaborative role with government and all related stakeholders in search of workable solutions to common challenges.”

That’s because the alcohol industry is walking a fine line. It absolutely recognises the need to prioritise frontline medical workers and hospitals while the country fights the resurgence of the Covid-19 pandemic.

At the same time, it is desperate to move towards more effective and less economically damaging interventions than the outright ban on alcohol sales.

It is this message the industry was trying to communicate with the government ahead of the scheduled 15 January end of the current regulatory period.

Given that the ban on alcohol sales was extended by President Cyril Ramaphosa,  it remains to be seen whether the industry will choose to weather the next 30 days or fight it out in court.

“SAB is tone-deaf,” says an individual close to the original trade negotiations with AB InBev. “The company is no longer playing a leadership role in the liquor industry and we think they are using the case as a way to get out of their obligations.” 

One possible reason that the firm is “tone-deaf” to South African policy dynamics is that SAB is no longer SAB, it is AB InBev, which in turn is 23% owned by 3G Capital, the Brazilian private equity fund that includes Burger King and Heinz among its portfolio companies and is one of the world’s most audacious private equity firms.

As such the instruction to challenge the government in court was not a local decision, but came from “on high”. 

And “on high” has long been unhappy with the performance of its business on the southernmost tip of Africa. Once the glory of the SABMiller empire, profit margins have moved backwards over the past two years, a fact that was not going to be tolerated for long.

“SABMiller will probably be subject to the same treatment as other companies under the Brazilian firm’s control,” noted a New York Times article ahead of the merger.

“Zero-based budgeting, a system that requires managers to justify all expenses on an annual basis, is likely to be put into effect. Staff members will be purged. Any unnecessary expenses will be eliminated.”

It also purges existing cultures and management teams, creates a command and control structure that centralises decision making by a small senior team; and is paranoid about costs, according to a 2015 McKinsey report into 3G  Capital.

What this presages is more concerning. The fact that the company has thrown down the gauntlet does not bode well for job retention beyond this date. 

SAB’s challenge of the liquor ban may about more than simply preventing future bans, but the first steps in a strategy to extract profits out of the company, regardless of the social cost. DM

 

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All Comments 19

  • My sympathies lie with SAB in this matter. The ban on alcohol sales is the easy way out of a problem which should be the responsibility of SAPS, but is one the “service” apparently cannot enforce?
    This inability to manage means that the majority of drinkers are being punished for the actions of the few.
    Alternative moves to control the damage done by those who cannot control their own behaviour include making hospitality management responsible for the behaviour of their drinking clientele, and random checks on, particularly, pedestrians and those not in charge of a vehicle, but these require efficient policing which, in South Africa, is normally an oxymoron.

  • I accept that AB Inbev has a legal obligation to comply with the terms of the merger agreement with DTI in terms of empowerment and employment, but the agreement was concluded prior to Covid and I doubt AB Inbev would have signed the agreement if they knew that their operations would be shut down. It is impossible to continue employing thousands of employees when a business is not trading. The reasons for the ban are accepted, but it is rather a “blunt instrument” much like the beach ban. The real problem is the extremely irresponsible South African public. If only we had had great education for the last 26 years!

  • I support SAB in this matter. The most basic requirement for it (and any firm) to meet merger/acquisition commitments is to be able to trade, even if with constraints imposed in it. Without Revenue, nothing is possible. I’m not sure how this constitutes being tone deaf. The link between alcohol sales and admissions to trauma wards has been well made, but this causality is now (again) used by politicians and lazy reporters to justify the ongoing ban, which lumps La Colombe, every suburban trattoria and every Garden Route eatery in the same boat as a problem shebeen. Trauma wards are not being filled by patrons of the former three. It simply is not a common sight to see drunk patrons smashing beer quart bottles and getting into it in the parking lot of our fine dining or family establishments – a hard but uncomfortable reality. But suggesting that different restrictions should apply to different categories of businesses, to a) deal with the trauma ward issue and b) allow as much business to continue as possible would require nuanced thinking and a willingness to ignore the howls of ‘unfair’ from those who believe that the lowest common denominator is what we should embrace. We simply have to accept that different restrictions are needed for different problems, not always defaulting to trying to kill a fly with a platoon of soldiers. SAB are objecting to the ban as a blunt universal instrument, not to measures that might assist in reducing incidences of drunken violence (based on what is in the public domain).

  • This corrupt government has stolen Billions. The Tax on Alcohol brings in a lot of tax revenue. Limit the selling of booze at the till. (1 x 6 pack, 2 x bottle of wine, 1 x hard tack.). The government is going to need to go after the people, to get the tax that is needed to keep Ace, Zuma, Gupa’s and their friends accustomed to the lifestyle that they have been used too.

  • Sasha writes disdainfully about “the pursuit of profits” yet forgets that, were it not for that pursuit, humans would still be living in caves and the publication/s for which she writes (in order to feed herself) would not exist. SMH…

  • All one has to consider is what the booze ban in the USA “Prohibition” spawned, the biggest underground criminal network in the world and it’s still functioning.
    In SA today, one can buy any alcohol you like, any time, it just costs you a lot more and the Govt. doesn’t get any tax revenue. Further, much of the illicit alcohol is poisonous fake product. Go figure !

  • I find headline irresponsible (what is clear is the giant brewer is interested in one thing and one thing only — profits). I don’t believe this journalist has any comprehension of the economic consequences of these three liquor bans. The impact on the beer industry has been worse than other alcohol industries because of the short expiry life on the product, the complications of shutting down a supply chain and switching plants on an off. I expect a higher standard from Daily Maverick.

  • In the concern for business interests, is there any thought for the 300,000 odd in hospitals, being treated and quarantined while being covid positive, not to mention the medical staff who are expected by the members of the board of SAB, when / if those individuals are unfortunate enough to get it, to be around to treat them?

  • Shock, Horror, Business that invested Millions of Rands and made commitments to Govt wants to make a profit.
    As others have said, incompetence to manage abuse leads to total locdown.
    By the same logic we should ban cars, then there would be no trauma cases from accidents
    The value chain associated is huge, apart from the Hospitality sector, Bottle makers, label makers truck drivers, engineering companys involved in maintenence, the list goes on
    this excluding the tax revenues that pay for the health sector
    But working out a reasonable solution to the problem involves too much joined up thinking.

  • I agree with the comments listed after this article – not the article itself and sometimes wonder at the motives of some of the Daily Maverick reporters. For a country to be successful we have to have a fully employed and educated population. Government has to create the environment for this to happen. When Government take the decisions on how companies must run their business, or restricts them, there is nothing but sub-optimisation as seen in many countries, both in the past and current. Successful business mean employment, taxes, growth in number of businesses, and a better standard of life for all. The reward for doing all of these things is for the management to take a relatively large slice of the pie – but the alternative is that the whole supply chain is destroyed and many people have no income. My only caveat is that many managers overdo this, but then many give back the excess to the community via donations to chartable institutions etc – there is only so much money that one person can spend.

    The Government and many journalists seem to think that big business in particular, and medium and small businesses have plenty of cash to run their business and pay workers, even under lockdown. This is simply not true. For most businesses, their profit comes out of the last 5-20% of sales. Operating at 50% means a loss. How does this journalise expect Inbev to maintain their commitments when they are not allowed to trade by Government edict. Jobs are always the first thing to go.

    The pandemic is a national disaster which could have been better prepared for, were it not for ineptitude and systemised looting by many of those in charge. No countries sole goal is to protect lives in the long term. We are all going to die – 99.5% before the age of 100 and from as young as birth. Destroying jobs will be much more devastating in the long run. Closing the liquor industry will destroy thousands or more likely hundreds of thousands of jobs. Where will people find a source of income when this happens and what will they resort in terms of physical harm to people to get what they need (including family violence) or the other multitude of effects, including malnutrition issues will they face? Yes – the alcohol ban has saved some hospital beds now – what about in the future? What should be seen as a failed policing issue has given a probable death sentence to many thousands more people.

  • There is nothing wrong with profits – it is what drives business and the world. The alternative is failure, misery, poverty and bankruptcy – something our anc government are experts in at in their blind adherence to state control and the adoption of failed socialist doctrines. Let’ not mention grand theft, outright corruption and complete impunity by the elites and the politically connected. I support AB In Bev as this outright ban is nothing but a blunt instrument wielded by power hungry autocrats and control freaks. There is a reasonable and middle road that can be implemented in order to save jobs/livelihoods. I can guarantee that if any of these degenerate halfwits making these rules were hit in the pocket like the rest of the population i.e. not earning their full guaranteed salaries, the rules would be very different.

  • Pathetic one sided article. I fully support SAB’s challenge to the idiotic kleptokrats in gutterment. Their knee jerk simplistic bans have little effect on the actual problems. Poverty being the main one – and again – their ridiculous socialistic policies only serve to deepen unemployment, shrink the economy and chase direct foreign investment from our shores.

  • As a Maverick Insider who is constantly impressed with the normal standard of reporting, this article is specious (superficially plausible, but actually wrong – Oxford Dictionary). Not wrong perhaps but certainly wildly misleading. Businesses exist because there are profits to be made. These profits go into expansion, research and development, staff training, sponsorship, charitable foundations etc. etc. so making a profit is fundamental to having a healthy, functioning economy. Of course, socialism, communism and all the other anti-profit ideologies aren’t really against profit, they’re against anyone else being in control of the profits, which makes it difficult for them to purloin the said profits. I agree with the majority of the comments made about this article. DM, you should advise some of your journalists to actively engage brain before putting finger to keyboard. This is not up to your usual standards.

  • Agree with the comments – very very poor reporting. I also wonder what agenda DM is supporting (it’s clear that they are supporting one, since they are seldom objective). Wondering if it’s still worth supporting these guys.

  • Shareholders should be concerned if their managers were NOT pursuing profits.

    Government is in a tight spot : they would face havoc if they brought out rules that differentiated alcohol rules for different groups. What remains irrational is whether 99.9% should be restricted for the behaviour of the 0.1% I would like to see a test : is the trauma reduction caused by the alcohol ban or by the curfew? Or : what other countries do this? Our government is making to so easy for people to ridicule them and spread mischief. I see the new reg’s define the beach ban to within 100m of the high water mark. Better evacuate the entire waterfront then…

  • I hope none of the very sensible and well reasoned comments posted are part of ABInBev’s social media ‘influencer’ campaign. That campaign, in my view, is a poor move, and potentially and very likely self defeating. But its legal challenge and all its components really are vital to our democracy and to the economic future of our country. The article is horribly superficial, and worthy of DM’s editors’ reflection. And your response please. I have no idea what the referred to “tone in the room” is, or why “the liquor industry insider” wasn’t named (although I do have an idea as to that) but anyone in the liquor industry, or the restaurant trade, or the SA wine world should be challenging the absurd and unconstitutional “easy fix” solutions of the COMMAND Council. Bans like this put many many more lives at stake than just the hapless victims of the virus. In the bigger and broader picture, this ban, far from helping, exacerbates rather than ameliorates. And SAB – locally or globally driven – should be thanked for challenging.

  • Like most of the commentators I’m really disappointed with Sasha’s article. My business could not continue without making a profit and being able to pay my employees and suppliers. I don’t even drink the stuff they make, does not affect my personal life at all and yet am forced into defending this principle. However, there’s a group of autocrats (we don’t even know who they are, how they got there and what they do) making ad hoc decisions (the beach and sea must be full of Covid, unless you have an angling licence – then you’re immune) which is scarier than Donald Trump getting a 2nd term.

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