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.

^{Bogota in Columbia has a growing economy}

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.

In September, the
Dutch brewer rebuffed an audacious takeover approach by SABMiller.

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.

^{Karl Lippert SABMiller Latin America president}

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.