Just as Frank Zappa (an American composer, singer-songwriter and record producer who died in 1993) would put it, “You can’t be a real country unless you have a beer and an airline. It helps if you have some kind of football team or some nuclear weapons but at the very least you need a beer.”

We think SABMiller’s marketing strategy, particularly in Africa, is broadly in line with Zappa’s statement. The strategy in Africa has been to diversify the range and mix of beverages.

It is also worth highlighting that the global brewer has developed at least one local premium brand in every African market that it operates. Furthermore, it has expanded “Chibuku” (a low capital, low price and high volume product) beyond Southern Africa into other key markets, with test-marketing having been concluded in Nigeria and Mozambique.

The concept of broader portfolios and longer-price ladders is evident in markets such as Mozambique, where the brand’s portfolio includes economy brands (such as Chibuku), main stream brands (such as Preta) and premium brands (such as Grolsch). By focusing on both premium and affordable beer categories, SABMiller has experienced robust volume growth.

The company recently published a trading update for the six-months ended 30 September 2011, showing that beer consumption varied across markets with healthy growth being registered in Latin America and Africa and underlying weakness in North America and Europe. Overall, lager volumes were up 3% while carbonated soft drinks grew by 6%. The volume growth combined with selective price increases and mix benefits led to a 6% growth in group revenues and a 3% increase in the group’s revenue per hectolitre.

We opine that while consumer spending remains subdued in developed markets such as the US and Europe, the incremental improvement in economic conditions across most of emerging markets is likely to be maintained.

Africa registered lager volume growth of 15%. Tanzania delivered buoyant lager volume growth of 20%, aided by strong growth of the local brand portfolio. In Uganda, volumes grew by 23% driven by increased penetration in country and sales execution. Zambia volumes were 22% ahead of the prior year assisted by improved economic conditions and a strong performance by the Castle brand. Lager volumes in Mozambique grew by 11% on the back of healthy growth of the mainstream portfolio. In Ghana, the brewer noted that strong economic conditions and improved availability resulted in lager volume growth of 54%. In Zimbabwe, lager volumes continued to benefit from capacity upgrades in the prior year and grew by 30%. SABMiller’s associate Castel delivered 11% lager volume growth with good performance in the DRC. However, in South Africa, lager volumes were impacted by weaker consumer demand and a higher base in the prior period (2010 FIFA World Cup).

From an investment point of view we see exciting opportunities to gain exposure directly in SABMiller’s subsidiaries on the African continent. Some of the clear favourites are Delta, Tanzania Breweries, NatBrew and Zambrew.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.