Companhia de Bebidas das Américas

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Companhia de Bebidas das Américas

Rua Renato Paes de Barros, 1017, 4th Floor
04530-001 Sao Paulo
Brazil
Telephone: +55-11-2122-1200
Fax: +55-11-3741-1856
Web site: http://www.ambev.com.br

Public Company
Incorporated:
2000
Employees: 18,136
Sales: R 7.33 billion ($2.51 billion) (2002)
Stock Exchanges: Sao Paulo New York
Ticker Symbol: AMBV
NAIC: 551112 Offices of Other Holding Companies; 312111 Soft Drink Manufacturing; 312120 Breweries

AmBev, more formally known as Companhia de Bebidas das Americas, is the worlds fifth largest brewer. Formed from the 2000 merger of Brazilian beer titans Companhia Cerveceria Brahma and Grupo Antarctica Paulista, AmBev controls nearly 70 percent of Brazils beer marketone of the worlds largest and most dynamicthrough its three core brands: Skol, Brahma, and Antarctica. These brands represented the worlds 3rd, 9th, and 19th of the global top-selling beers. The company is also a leading player in the countrys soft drinks market, through its Guarane fruit-flavored soda and its Pepsi bottling franchise. Yet the rationale behind the AmBev merger was to create a regional and international beverages powerhouse, and as such AmBev has been pursuing expansion into other South American markets. In 2003, for example, the company gained a dominant position in the Argentinean beer market through its purchase of a stake in that countrys Quilmes. AmBev also has targeted Venezuela, Uruguay, Paraguay, Peru, and the Central American region for its near-term growth. Nonetheless, international beer sales made up only 5 percent of the companys total sales, which topped R 7.3 billion ($2.5 billion) in 2002. Domestic beer sales remain the companys largest revenue generator, at 76 percent of total sales. Soft drinks provide another 15 percent of sales. AmBevs operations are based on a network of 33 beverage plants in Brazil, as well as six additional international plants. Listed on the Sao Paulo and New York stock exchanges, AmBev is led by CEO Magim Rodriguez Junio and cochairmen Mercel Herrmann Telles and Vic torio Carlos de Marchi.

Brazilian Beer Pioneers in the 19th Century

Companhia de Bebidas das Americas, or AmBev (for the American Beverage Company), combined longtime rivals Companhia Cerveceria Brahma and Grupo Antarctica Paulista into one of Brazils largest corporations and the number five brewery and beverage company in the world. Both companies had long dominated the Brazilian beer market, and both had their roots in the late 19th century.

Beer arrived in Brazil at the beginning of the 19th century, when it was imported by the Portuguese royal family into the country. For most of the first half of the century, beer remained reserved only for the privileged few who could afford to pay for the imported beverage. Although rudimentary efforts to brew beers in Brazil already had produced a native specialty, Cerveja Barbante (named after the twine used to keep the cork from popping out of the bottle), the first native brewery was constructed only in 1853 in Petropolis, in Rio De Janeiro, and began producing Bohemia branded beer. The first native Brazilian beer brands appeared soon after.

The 1880s proved a turning point for Brazilian beer production. In 1885, a new business, Companhia Antarctica Paulista, was established by a group of friends including Antonio Zer-rener and Adam Ditrik in the Agua Branca district of Sao Paulo. Although that company initially supplied ice and prepared foods, it soon switched over to brewing beer. By 1890, Antarctica had grown to more than 200 employees and was producing more than 40,000 hectoliters per year. The company officially incorporated the following year as Sociedade Anònima da Antarctica in 1891. Antarctica later grew into one of the countrys largest brewers and leading brands.

By then, Brazil had seen the start of another major brewer, when Joseph Villiger, an immigrant from Switzerland, decided to begin brewing the European-style beer he missed from home. In 1888, Villiger set up Villiger & Cie and began producing his own Brahma branded beer. Named after the Hindu god, Brahma beer grew from an initial output of 12,000 liters per day to become Brazils other leading brand.

Both the Antarctica and Brahma breweries changed hands in the 1890s. Two of Antarcticas founding partners formed a new partnership, Zerrener, Bulow & Cia, to take a majority share of the company in 1893. A year later, Georg Maschke & Cie bought the Brahma brewery, changing the companys name to Georg Maschke & Cia Cervejaria Brahma. Villiger had not abandoned beer production, however, and in 1899 bought up Cervejaria Bavaria, launching his own brand, Franzkiskaner-Brau.

Five years later, Villiger sold that brewery as well, to fast-growing Antarctica. Brahma, too, had been expanding steadily, acquiring Preiss Hausier & Cie and its production of Tetuonia branded beer. With its beer production now topping six million liters, the Brahma brewery went public that year, officially changing its name from Villiger & Cie to Manufatura de Cerveja Brahma Villiger & Companhia.

Rivals in the 20th Century

For the most part, Antarctica and Brahma had grown strongly but within their separate regions. In the early 20th century, however, the two companies began to expand their distribution and production into other Brazilian states and regions. Both companies also began expanding their brands portfolios, adding a variety of beer types, including the popular Chopp (the Brazilian term for draft) beers. At the same time, the company began adding to its production capacity. Antarctica launched its second production unit in Ribeirão, in the state of Sao Paulo, in 1911.

Brahma rolled out its Malzbier in 1914, then turned its attention to external growth. In 1921, the company acquired the sales and distribution license for the Germania brand, later known as Guanabara, which had been one of the earliest of the Brazilian beer brands. In 1934, the company had a new hit on its hands with the introduction of its bottled draft beer, Brahma Chopp. That beer quickly became a Brazilian bestseller, lifting the company to the top of the countrys brewing industry.

Antarctica, too, boasted strong brand growth in the first half of the century, as it diversified beyond beer production. In 1921, the company introduced a soft drink based on the Guaranà berrywhich contained a natural stimulant said to be three times stronger than that of coffee. That drink became a national favorite, rivaled only by the entry of Coca-Cola into the Brazilian market. Brahma, not to be outdone, introduced its own guarana-based soft drink in 1927.

By the 1950s, Brahma and Antarctica had emerged as the chief rivals for the Brazilian beer and soft drinks markets. Both companies had expanded strongly, with Brahmas production base reaching six breweries and a malting plant by the early 1950s. In 1954, Antarctica established its own malting plant in Sao Paulo. Two years later the company formed a beverage marketing and distribution subsidiary, Dubar S.A.

Brahma entered enemy territory in 1960 when it acquired Sao Paulo-based Companhia Paulista de Cerveja Vienense. Antarctica responded the following year by purchasing control of the Bohemian brewery, adding that pioneering beer brand to its stable of brands.

The 1970s and 1980s were a period of further consolidation of the Brazilian beer industry, led by Antarctica and Brahma. The latter expanded its coverage to Brazils north and northeast when it acquired Astra SA in 1971. That acquisition not only gave the company additional production facilities in the region, but also access to a regional distribution network. In 1980, Brahma made a still more significant acquisition when it acquired Cervejarias Reunidas Skol Caracú S.A., giving it control not only of the 100-year-old Caracú brand, but also the fast-growing Skol brand (which, on an international level, grew to become the worlds number three-selling beer by the dawn of the next century). The addition of the Skol brand enabled Brahma to join the worlds top ten beer producers by the middle of the decade. By the beginning of the next decade, it had climbed into the number six position.

Antarctica, too, had been growing through acquisitions which expanded its own national coverage; these included Cervejaria Pérola and Companhia Itacolomy in 1973 and Cervejaria Serramalte and Companhia Alterosa de Cervejas in 1980. At the same time, Antarctica had been expanding its domestic production park, building plants in Goiânia, Montenegro, Rio de Janeiro, and Viana, in 1973, then in Rio Grande do Sul in 1975 and in Teresina in 1976. The company also began franchising soft drink brands, and opened a new production plant for that operation in Rio de Janeiro in 1978. The following year, Antarctica ventured into the international market, beginning exports to the United States, Europe, and Asia.

Company Perspectives

Growing our business and continually improving.

AmBev is the leading player in one of the worlds largest and most exciting beer markets. We are all focused on achieving long-term, sustainable results backed by prudent and disciplined operating and financial policies. We invest our time and creativity in developing lasting competitive advantages in areas that our competitors find hard to imitate. And we have a track record of achieving what everybody else believes to be impossible.

At AmBev, we dont take our foot off the gas, or our eyes off the ball.

International Brewing Powerhouse in the New Century

Both Brahma and Antarctica continued opening new production plants through the 1980s and into the 1990s. In 1990, however, Brahma underwent a sea of change when it found itself with a new majority shareholder, Banco Garantia. Under its new owners, Brahma received a new CEO, Marcel Telles, who led the company on a drastic restructuring. Among other features of that effort, Telles introduced U.S.-styled incentive programs, including stock options to boost production. Telles also slashed the companys payroll in half and introduced new production and distribution technology. Telles leadership paid off, and by the end of the 1990s, Brahmas per-employee production had been multiplied by five, while earnings had grown nearly tenfold.

Brahma also had begun an aggressive international expansion, targeting its neighboring South American markets ahead of the Mercosur agreement, which lifted trade barriers in 1995. The large Argentina market became a primary target, and the company went head to head in competition with Argentinean beer leader Quilmes, slashing prices on its popular Brahma Chopp in order to undersell Quilmes own brands. In October 1992, Brahma began construction on a new $40 million plant to cement its growing sales in Argentina.

Antarctica meantime turned to the Venezuelan market, buying up that countrys Cervecera Nacional in 1994. By then, U.S. and other foreign beer producers had begun attempting to break into the South American beer markets, and especially into Brazil, which by then was among the worlds top five beer producers. In 1995, Brahma formed an agreement with the United States Miller Brewing Company to distribute that companys Miller Genuine Draft in Brazil. The following year, Antarctica found a U.S. partner as well, forming Budweiser Brasil with Anheuser-Busch. In that year, Skol began its own partnership, with Denmarks Carlsberg.

Yet these brands presented little competition to Brahma, Antarctica, and Skol, which together dominated nearly 70 percent of the Brazilian market. Brahma had further emphasized its clout in 1996 when it opened a new plant in Rio de Janeiro. With a production capacity of 12 million hectoliters per year, the plant was then the largest and most modern on the continent.

By the end of the 1990s, Brahma and Antarctica continued to duke it out for Brazils top spot. Meanwhile, in the rest of the world, the beverages industry was undergoing a rapid consolidation, and new, global powerhouses had begun to emerge. At the end of the 1990s, Antarctica became the target of interest for partner Anheuser-Busch, which proposed a takeover of the Brazilian company. Antarctica rejected the offer, however.

Instead, Brahma Chairman Jorge Paul Lemann approached Antarctica with the proposition of creating a Brazilian mega-brewer, one capable of competing beyond Brazil on the broader international market. This time Antarctica gave in, and at the end of 1999 the two parties announced the creation of Companhia de Bebidas das Americas, or, less formally, AmBev.

AmBev immediately claimed the number five spot among the worlds beverage makersand the number four spot among the worlds top breweries. The combined entityforced to sell off its Bavaria brewery holdings to Molson for $98 million in order to satisfy monopolies commission requirementsnow controlled 70 percent of Brazils beer market, and began plans to expand throughout South America.

Key Dates

1885:
Companhia Antarctica Paulista is established by a group of friends including Antonio Zerrener and Adam Ditrik in the Agua Branca district of Sao Paulo.
1888:
Joseph Villiger, a Swiss native, sets up Villiger & Cie and begins brewing European-style beer under the Brahma brand.
1904:
Villiger & Cie goes public, changing its name to Cerveja Brahma Villiger & Companhia.
1934:
Brahma releases bottled Brahma Chopp, which quickly becomes one of Brazils best-selling beers.
1960:
Brahma acquires Sao Paulo-based Companhia Paulista de Cerveja Vienense.
1961:
Antarctica acquires Brazils oldest brewery and beer brand, Cervejaria Bohemia.
1971:
Brahma acquires Astra, extending its reach to north of Brazil.
1972:
Antarctica acquires Cervejaria Polar and Cervejaria de Manaus.
1979:
Antarctica begins beer exports to the United States, Europe, and Asia.
1980:
Brahma acquires Cervejarias Reunidas Skol Caracú S.A.
1990:
Brahma is acquired by Banco Garantía; new management leads the company on profit-boosting restructuring as Brahma becomes the worlds number six beer producer.
1992:
Brahma begins exports of Brahma Chopp to Argentina.
1994:
Antarctica acquires Venezuelas Cervecera Nacional.
1996:
Brahma opens a new production plant in Rio de Janeiro with production capacity of 12 million hectoliters.
1999:
Brahma and Antarctica agree to merge to form a dominant Brazilian beverage group.
2000:
AmBev merger is approved as the company becomes the worlds fifth largest brewer; the company joins with Frances Danone to acquire 57 percent of the Salus brewing group, based in Uruguay and that countrys second largest brewer.
2001:
The company acquires Cervecería y Malteria Paysan-du, in Uruguay, gaining 45 percent of that market; Cervecería Internacional in Paraguay is acquired.
2003:
The company acquires Quilmes of Argentina, gaining a 70 percent share of the Argentina market; the company begins construction on its first brewery in Peru.

The new AmBev was listed on the Sao Paulo and New York stock exchanges in September 2000 and immediately hit the acquisition trail, joining with Frances Danone to acquire 57 percent of the Salus brewing group, based in Uruguay and that countrys second largest brewer. That acquisition gave AmBev control of some 25 percent of the countrys beer market. Uruguay remained an AmBev target in 2001, when it bought nearly 100 percent control of Cervecería y Malteria Paysandú. That company added such brands as Norteña and Prinz, boosting AmBevs share of the market to 45 percent, as well as malting facilities and mineral water bottling operations.

From Uruguay, AmBev turned to Paraguay, paying $12 million to acquire Cerveceria Internacional. The company, which through Brahma had been involved in distribution partnerships with PepsiCo since the early 1980s, strengthened that relationship, as Pepsi took over international distribution of AmBevs Guaranà soft drinks, introducing them to Europestarting in Lisbonin that year. In exchange, AmBev acquired the Brazilian production and distribution license to PepsiCos Gatorade, and then, the following year, Mountain Dew and Pepsi Twist as well.

AmBev meanwhile continued its assault on the Argentinean market, once again slashing prices to undercut its main Quilmes rival there. By May 2002, however, AmBev had succeeded in wearing Quilmes down, as the two sides agreed to integrate aspects of their operations in Argentina. By the beginning of 2003, however, that agreement turned into a full-scale takeover, as Quilmes merged into AmBev in a deal worth some $600 million.

The newly enlarged AmBev now added Quilmes control of 70 percent of Argentinas beer market, together with 80 percent of Paraguay and 55 percent of Uruguay. Yet AmBev had no intention of slowing down, announcing that its next targets were to be Peru and Central America. By May 2003, the company had begun to make good on its word, announcing its intention to build a $38 million brewery in Peru in order to go head to head with that countrys dominant player, Bavaria, of Colombia. Yet few observers expected AmBevs future ambitions to remain with Latin America as it continued to assert itself as one of the global beverage industrys heavyweights in the new century.

Principal Subsidiaries

ANEP Antarctica Empreendimentos e Participaçoes Ltda.; Indústria de Bebidas Antarctica do Sudeste S.A.; CRBS S.A.; Cervejaria Astra S.A. (96.7%); Indústria de Bebidas Antarctica Polar S.A. (96.9%); Jalua Spain S.A.; Monthiers S.A.; C.A. Cervecera Nacional S.A. (Venezuela; 50.2%).

Principal Competitors

Altria Group Inc.; Philip Morris USA; Anheuser-Busch Companies Inc.; Madhvani Group; Groupe Danone; Kirin Brewery Company Ltd.; Asahi Breweries Ltd.; Interbrew SA/NV; Carlsberg A/S; Orkla ASA; Allied Domecq PLC; Dr. August Oetker KG; Fomento Economico Mexicano S.A. de CV; Sapporo Breweries Ltd.

Further Reading

AmBev Building on Combined Strengths, Institutional Investor. July 2001, p. 1.

Andean Venture, Latin Trade, May 2003, p. 16.

Brazil, Argentine Brewers Join Forces, United Press International January 14, 2003.

Downe, Andrew, Expansion on Tap, Latin Trade, April 2001, p. 28.

Kirkman, Alexandra, Thirsty, Forbes, October 1, 2001, p. 74.

M.L. Cohen

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