Off Calle 45, a busy road in the shadow of Mount Monserrate, the most famous of the rugged mountains that overlook Bogota, is a tiny bakery selling typical Colombian snacks such as Arepa, a flatbread made from ground maize.
To the students who live in this part of Bogota, an area which is home to four universities, the bakery is nothing out of the ordinary.
It is the kind of no-frills, owner-run snack bar that is 10 a penny in this sprawling city, with a population of almost 8m. Inside, though, there are signs of a looming battle between two of the world’s biggest brewers.
Two long glass shelves line each side of the bakery. The bottom shelf on each wall is packed full of beer brands such as Poker, Aguila, Club Colombia and a malt-based soft drink called Pony Malta, which are owned by Bavaria, Colombia’s biggest brewer with a 98pc-plus market share. On the top shelf, jostling for position with well known international names such as 7UP, is a light pink soft drink called Postobon.
The prominence of the beer brands and Pony Malta compared with Postobon may seem of little significance. But for Bavaria, it means everything. And its significance over the next three to four years will only grow.
Bavaria has been owned since 2005 by SABMiller, the world’s second biggest brewer, after it persuaded the company’s owners, the Santo Domingo family, to agree to a $7.8bn (£4.96bn) takeover.
The deal was a coup for the FTSE 100 beer giant. It beat fierce competition from rival beer giants and while SAB already had operations in El Salvador and Honduras, Bavaria provided a step-up in the fast-growing South American market.
Not only did Bavaria have a monopoly in Colombia, South America’s third largest economy, but also dominant market positions in Ecuador, Panama and Peru.
Nearly a decade on from the Bavaria deal, South America is the most important region in SABMiller’s global business, contributing 31pc of the company’s $3.2bn operating profit in the six months to September 30. It also generates a fifth of the group’s net producer revenue from drinks, a measure that takes into account contributions from joint venture businesses, and is less excise duties and other taxes.
Within SABMiller’s Latin American business, Colombia is the leader. In the first half, the Colombian business grew net producer revenue by 6pc on a constant currency basis.
Bavaria may have a monopoly in this country but the end of decades of security issues mean Colombia has fast become a fertile hunting ground for consumer goods companies and SAB’s dominance faces its first real threat.
Chile’s biggest brewer, Compania Cervecerias Unidas (CCU), which is controlled by Heineken, the world’s number three brewer, and Chile’s richest family, the Luksics, want a share of the spoils in the Colombian market. CCU has just agreed a tie-up with Postobon, Colombia’s biggest soft drinks company, to start selling beer in the country.
Postobon, which is controlled by the Colombian billionaire Carlos Ardila Lulle, has a strong distribution network of 490,000 outlets. Some of those are believed to include hospitals and schools, where beer can clearly not be sold, but Postobon’s network will provide a powerful platform for Heineken and other beer brands that will be introduced to the Colombian market by the joint venture.
The pair intend to plough $400m into the joint business, which will help fund a new brewery near Bogota.
The attempt by CCU to try to hit SABMiller where it hurts could not be better timed.
The approach sparked speculation that a long-expected merger between several of the world’s biggest brewers may come to fruition.
Shares in SABMiller surged on September 15, the day after Heineken issued a statement saying it had rebuffed its rival.
It came amid expectations that SABMiller would be vulnerable to an attack from the world’s number one beer company, Anheuser-Busch InBev. But after two months of no action, many analysts believe that AB InBev would be more likely to go after a major soft drinks acquisition.
Talk of a merger between the brewers has gone a bit flat. But the battle between the big four (Carlsberg being the fourth largest brewer) is fiercer than ever in important emerging market countries such as Colombia and Brazil, as they seek to counter lacklustre sales in mature regions such as Europe.
Consolidation is no longer looking as simple as a merger between two of the top four. Instead, fights are increasingly breaking out at a local level.
On the one hand, the lines between the beer and soft drinks industries are expected to become more blurred.
Analysts expect SABMiller, already a sizeable bottler of Coca-Cola products, to increase its presence in this area through a tie-up with another major soft drinks bottler in Africa. The most likely target, according to analysts, is Coca-Coca Sabco, a company founded in Port Elizabeth in South Africa in 1940, which has grown to become a significant force in the African market.
The markets have been patiently awaiting SABMiller to reveal its next move and an announcement is expected as early as this week.
On the other hand, brewers have been busy forming allegiances with local partners in key markets, particularly in South America, where countries, until now, have typically been dominated by just one or two major players.
As CCU and Postobon form their new alliance in Colombia, SABMiller is taking another shot at gaining a firm foothold in Brazil, the world’s second biggest beer market, and a heartland for AB InBev. That brewer was formed through the merger in 2004 of Brazil’s AmBev and Belgium’s Interbrew before it then swallowed Anheuser-Busch in the US.
SAB has struck an agreement with Grupo Petropolis, Brazil’s second biggest brewer, to push premium brands in Brazil. Its offensive will start next year with the launch of one brand, Miller Genuine Draft, initially.
In the meantime, SABMiller’s Bavaria business is readying the troops for a fight in Colombia.
“It’s juicy news, I know. A lot of people are rubbing their hands looking for a cat fight here,” says Karl Lippert, SABMiller’s president of Latin America, admitting the CCU and Postobon joint move on Colombia.
But Bavaria has faced and seen off competition in this market before. Analysts point out that Postobon built a brewery in Colombia in the mid-1990s, only to sell it a few years later to Bavaria when it failed to make a dent on the latter’s monopoly.
Lippert also highlights that SABMiller has been fighting off an offensive by AB InBev in Peru since 2004. A decade later, SABMiller’s business in Peru, Backus, still has a 96pc market share. Lippert fancies his chances against the CCU-Postobon joint business in Colombia.
“We have extremely deep pockets here and an extremely deep reach in Colombia,” he says.
“There is no scenario you can paint where we cannot match them [CCU and Postobon] dollar for dollar. There is nothing that they can do better and there is nothing they can spend more on. The odds [of them gaining significant market share] are incredibly poor.”
Lippert admits Bavaria could concede some market share in the short-term. “While we are looking at a period where it is going to look like we are losing market share for a period of time, where it settles out is normally a very low place,” he says.
SABMiller is relishing the fight. “It is extremely useful to have an enemy,” says Lippert during a trip to Bogota last week. “To have something front of mind is incredibly useful to the organisation.”
A global deal may still be some way off but the cat fights at a local level are about to get interesting.