Sao Paulo bar owner Arthur Santi has long served up boatloads of ice-cold Skol, one of Brazil’s most popular beer brands and a mainstay of brewing giant Ambev SA (ABEV3.SA).

Then last year, rival Heineken NV (HEIN.AS) made him an offer he could not turn down. Santi was launching another saloon in the same working-class neighborhood. The Dutch brewer wanted top billing for its products at the new location.

Heineken paid him 90,000 reais ($23,000) for a three-year commitment to sell Heineken as its only big-name premium beer. The company also threw in new refrigerators, tables and chairs, all emblazoned with its familiar green logo with the red star.

Bar by bar, Heineken is fighting for a bigger share of the world’s third-largest beer market and an end to Ambev’s dominance in Brazil.

While beer consumption has stagnated in much of the world, growth is still forecast for Latin America’s largest economy, which is why Brazil has become a key battleground for global brewers.

Heineken made a big move last year with its $1.2 billion purchase of the money-losing Brazil operations of Kirin Holdings Co Ltd (2503.T). That transaction doubled Heineken’s market share to nearly 20 percent.

But to catch Ambev, which still controls nearly two-thirds of the action here, Heineken has opened a multi-pronged front.

The company is aggressively marketing its products in bars and street corner watering holes, spots where convivial Brazilians guzzle nearly half of the nation’s beer annually.

And it is trying to plug holes in its strategy, both geographically and in terms of product offerings, according to interviews with several executives, analysts, consultants, distributors and bar owners.

The company is pushing hard into Brazil’s vast northeast, home to one-third of the nation’s 210 million people. While one of Brazil’s poorest areas, it is home to a number of sizeable cities, including Salvador, Fortaleza and Recife.

Heineken is also focusing on the mainstream market throughout the country, according to Marc Busain, the company’s Americas chief.

Prior to the Kirin deal, the company had beers at the high and low ends of the market, but little in between. It now plans to promote its mid-tier offerings, including Devassa, a mark acquired from Kirin, and Amstel, a Heineken brand that has been in Brazil only since 2015.

“Today we have a portfolio that allows us to play in all segments that matter in Brazil,” Busain said. “We have plans to transform Brazil into one of Heineken’s top markets.”

The Brazil duel is a microcosm of a wider global jousting match between Ambev’s parent company Anheuser-Busch InBev NV (ABI.BR), the world’s largest beer maker with $56 billion in annual revenue, and Heineken, the No. 2 player, with $25 billion, based on current exchange rates.

If InBev is worried about its Brazil lead evaporating, CEO Carlos Brito is not showing it. A native of Rio de Janeiro, he sounded unfazed at a March news conference where he discounted Heineken as an immediate threat on his home turf.

“Most of their business today, volume-wise, is on the value side,” Brito said. “It’s too early in the process.”

(For a graphic on the Brazil beer market, see: tmsnrt.rs/2trxCwv)

‘UNDER-REPRESENTED’

Brazil is already Heineken’s largest market in volume terms, Busain said in a telephone interview. He said the company hopes that within two to three years Brazil will produce profits on a par with Mexico and Vietnam, the brewer’s biggest money-spinners.

Some analysts are skeptical of that sunny projection.

Heineken’s margins will be constrained by its small market share, says Andrew Holland, beverage analyst at Societe Generale, given that economies of scale in marketing, distribution and procurement are only available to high-volume breweries.

He sees Heineken’s operating profit in Brazil at less than half the level in Mexico and Vietnam by 2020. Heineken is still No. 2 in both those countries, but the gap between it and the market leader is much narrower than in Brazil.

“What they are doing is transitioning from, effectively, a niche player into a full portfolio player, and the challenge then is to gain market share,” Holland said.

To that end, Heineken is banking on winning new customers in the northeast, defined as the states of Ceara, Maranhao, Piaui, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe and Bahia. Per-capita beer consumption there is half what it is Brazil’s prosperous southeast, home to Sao Paulo and Rio de Janeiro.

But northeast incomes are low, an average of just $4,500 a year, while sugarcane rum known as cachaça is the favored tipple. Some home-brewed varieties sell for as little as $2 for a liter bottle.

“You can find cachaça cheaper than beer, which is insane,” said Didier Debrosse, the Frenchman who has led Heineken in Brazil for the past five years.

To reach these consumers, Heineken’s bargain-priced Schin brand, which it acquired from Kirin, has spent an estimated 100 million reais since 2015 sponsoring the famous carnival celebration in Salvador.

The company is also upgrading a brewery in Bahia state to make a wider range of beers, including its premium Heineken. And it may shrink bottle sizes in the region to lower prices, said Mauricio Giamellaro, Heineken’s vice president of Brazilian sales.

COKE FEMSA BATTLE

Another challenge is distribution.

Since Heineken entered Brazil in 2010, through its purchase of the brewing business of Mexico’s Femsa (FMSAUBD.MX), its products have been distributed by Femsa’s bottling unit Coca-Cola Femsa (KOFL.MX).

Heineken wants to end that contract, which runs through mid-2022, and build out the distribution system it acquired from Kirin.

But the association of Coca-Cola distributors in Brazil is fighting the termination through an arbitration proceeding.

Nevertheless, Heineken has begun upgrading its network. Since last year, it has built six new distribution centers throughout the country, bringing its total to 29.

“The sales system has to be 100 percent focused on beer,” CEO Jean-Francois van Boxmeer told shareholders earlier this year.

Meanwhile, Heineken continues to woo Brazilian bar owners, whose patrons are responsible for 45 percent of the nation’s beer consumption.

Santi, the Sao Paulo bar owner, says business is so good he has expanded his newest bar, named Lazy Park. Heineken threw in an extra 50,000 reais to help him furnish it.

“They offered us a good deal,” Santi said. “It made sense to sell Heineken.”