Brewers bring beer fight to East Africa

Saturday January 12 2013

A Keroche Industries brewery in Naivasha, Kenya. Brewers are betting on the region’s beer consumption increasing to that of the current global average. Photo/FILE

A Keroche Industries brewery in Naivasha, Kenya. Brewers are betting on the region’s beer consumption increasing to that of the current global average. Photo/FILE 

By PETERSON THIONG’O The EastAfrican

Top executives will have to become more innovative as the East African beer industry becomes even more competitive.

Already, executives at East African Breweries Ltd (EABL), which currently controls about 85 per cent of Kenya’s formal alcohol market are a worried lot.

According to Standard Investment Bank, EABL executives held a meeting in mid-December to raise their concerns over the heightened activity on the part of their competitors on certain segments of their business.

While sales are growing in some of EABL’s units within the region, others are not.

In Kenya — the brewer’s main market — the spirits segment is the fastest growing.

However, according to Standard Investment Bank analysts EABL executives are concerned that the brewer may record lower beer volumes. In Tanzania, beer volumes were improving despite a tax hike in June 2012.

A slowdown in the Ugandan economy has dampened consumer demand, resulting in reduced spending on beverages like beer.

“EABL faced capacity constraints in the Ugandan market. However, the just completed and fully operational mash filter in Uganda, will result in lower imports from Kenya because of increased capacity, which will improve profit margins for the future,” said Standard Investment Bank in a note to investors.

Brewers are betting on the region’s beer consumption increasing to that of the current global average. This increased consumption will be driven by rising incomes and the region’s economies posting growth rates of above five per cent.

A recently released report by global investment bank UBS showed that on average an East African consumes well below the global average of about 35 litres per annum. According to the report, an average East African drinker consumes about nine litres of beer.

Kenya’s alcohol sector has experienced major realignments with the entry of new players — SABMiller, Heineken and independent spirits importers.

Keroche Industries’ ambitious expansion plans have forced EABL to launch new brands. Two months ago Keroche Industries — Kenya’s second biggest brewer — announced plans to upgrade its bottling plant at a cost of $29 million, which it aims to complete by the need of the year.

The plant should see the brewer increase its capacity from 60,000 bottles a day to about 600,000.

“The plant should help us push our market share from the current three to 20 per cent by 2014,” said Tabitha Karanja, the chief executive officer of Keroche Industries. The plant will enable the brewer to launch two new beer brands.

Independent spirits importers have been keen to also grab a share of Kenya’s market with the introduction of brands like Ciroc and Blue Moon whiskies.

The market has also seen the entry of traditional brewers, who following a change in laws have been allowed to commercialise their brews.

“Kenya’s Alcoholic Drinks Control Act 2010 allowed the sale of traditional drinks under regulated health conditions and has seen the entry of previously unlicensed brewers into the commercial segment,” said analysts at Renaissance Capital.

Competition is also heating up in Uganda and Tanzania, especially as Diageo and SABMiller extend their global competition into the regional market.

SABMiller said it was investing $70 million into its Ugandan subsidiary — Nile Breweries to boost its capacity while $80 million will be invested in Tanzania Breweries’ plants in Arusha, Mwanza and Mbeya in coming months.

The Kenya beer industry is set for a fresh round of shake-ups following the passage of new laws that ban the use of sports to advertise alcoholic products, even as local brewers continue to launch new drinks and expand their production capacity.

Through amendments to the Alcoholic Drinks Control Act 2010, which is now awaiting presidential assent, the government is also proposing to introduce a new levy of two per cent on manufacturing or on the import price of alcohol to support the rehabilitation of alcoholics.