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Distell brand disposal imminent?

23-Apr-2003

South Africa's Distell group, the giant wine and spirit group formed by the merger of Distillers' Corporation and Stellenbosch Farmers' Winery in 2001, could be forced to sell off a number of its brands as part of an investigation into the merger by the country's competition authorities.

According to reports in the South African press, the SA Competition Tribunal has not yet decided whether to force Distell to sell some of its brands or to licence them to other producers - or indeed a mixture of the two measures - and it recently decided to delay taking a final decision until 6 June.

 

The Competition Commission (which recommends procedures to the Tribunal but which does not have the final decision) has already suggested that Distell now has too great a competitive advantage in South Africa, in particular when compared to other smaller players in the spirits sector.

 

The Competition Commission is particularly concerned about the impact the merger will have on sales of whisky, brandy, vodka, cane spirit, gin, table wine, sparkling wine, fortified wine and FABs, it said. The two companies have strong positions in all these markets, and while strong competitors still exist in the whisky, vodka, cane spirit, table wine and FAB sectors, the Commission believes there are substantial barriers to entry for competitors in the others

 

For example, Distell controls more than 20 brandy brands, giving it a market share of around 70 per cent in volume and 75 per cent in value. It also holds all the major brands in the market for sparkling wine, with a market share of around 75 per cent, and has a strong grip on the gin sector with a 68 per cent market share.

 

Distell is likely to fight the Competition Commission's decision, arguing that removing any of its strong brands will make it more prone to increased competition from foreign giants such as Diageo - effectively undoing the rationale behind the merger in the first place, which was to create a strong South African drinks group with a portfolio of brands capable of tackling international markets.

 

The Commission has already said that Distell's export initiatives in the table wine industry were evidence of this desire to compete in international markets, and that this would count in its favour when the final decision was taken.

 

Distell has already been prohibited from distributing brandy brands owned by its only major rival, KWV, and is now likely to be forced to sell off some of its own brandy and sparkling wine products.

 

Full details of the Competition Tribunal's findings can be found on the organisation's website .