KARUKU: A toast to Tanzania for the fastest growth as we go into next century
Thursday March 10 2022
Jane Karuku, the chief executive and managing director of 100-year-old East African Breweries Ltd, spoke with Jackson Mutinda about the regional brewer’s growth path in the next century.
This year, EABL marks 100 years of operations in East Africa. What are you celebrating?
We are celebrating history. EABL is the biggest and oldest local consumer packaged goods company in East and Central Africa. EABL’s cradle is in Ruaraka, in Nairobi, established by George Hurst in 1922. George was killed in an elephant-hunting accident in Ngorongoro, Tanzania, and his brother Charles took over his small brewing operation. In memory of George, Charles decided to name the first beer Tusker.
We have made significant milestones in our growth journey: We have a vast value chain that contributes nearly one percent of East Africa’s GDP, partnering with 60,000 farmers who provide us with raw materials such as barley and sorghum, while more than 50,000 retailers employ many more in their outlets, sustaining livelihoods and contributing to local taxes.
Whether it is Kenya Breweries, Serengeti Breweries or Uganda Breweries, we are an integral part of the society and the economy. So we are celebrating the impact we’ve had on the people, from farmers to suppliers who give us even paper, the labels, the bottles, and the people we’ve employed over time. And the assets: the amount of money we’ve invested in East Africa as a business is huge.
In 2000, we attracted the global firm Diageo, who acquired a majority shareholding, enabling us to stretch our portfolio, especially in spirits, which has grown exponentially. So how many bars and distributors have we touched in East Africa? Right now we have 250,000 across the region. Kenya has 110,000.
Imagine what that does to the consumer. So, we are celebrating the effect of what we’ve got over the past 100 years in the communities we’re in. And if you look at it from the government side, we are always the number one excise taxpayer. And before the coming of Safaricom, Equity Bank and KCB, we were the highest capitalised business on the Nairobi Securities Exchange.
How does this past century shape the next one?
The reason why we’ve been successful is we’ve created an ecosystem from grain to glass. We buy grain, change it into some fancy things in the factory, and give it to the consumer. We have several principles we use. For example, we have an ambition to have 80 percent of our inputs locally sourced. That’s actually what helped us during the Covid crisis. We didn’t suffer too much from the global supply chain disruptions. Because, if you think about the biggest input — which could be barley or glass — it’s locally sourced. The glass comes from next-door (at Central Glass Industries), or from Mombasa, or Tanzania.
How are you doing in the other countries in East Africa?
You saw our half-year results. We have the three businesses, of course Kenya is the biggest — now shy of 70 percent — then we have Uganda and Tanzania growing really fast. We’re very happy with the performance in Tanzania for the past three, four years. Same as Uganda. Kenya is recovering. The numbers look a bit bigger — 27 percent growth — but, generally, Tanzania and Uganda are growing faster (15 percent and 18 percent, respectively). So we’re soon going to start having a balanced business, where we have three legs, with “sub-legs” in Rwanda and South Sudan.
Tanzania didn’t have Covid lockdowns but Uganda, which had stricter measures, seems to perform better...
The numbers should not mislead you. Tanzania never closed. So the year we declined in Kenya and Uganda, Tanzania kept growing, so the base was higher. They grew 15 percent.
Did the business record new consumer patterns during the Covid lockdowns?
Yes. The consumer generally shifted. They became very aware of their health. People didn’t want to go where there were crowds but safer places — to their houses with a few friends — and drank better, more expensive brands. You could go on a picnic, or to parks. Then we saw a shift towards spirits, especially because they are more portable. We also saw a shift in where people bought their drinks. Like in Kenya, many wines and spirits shops have sprung up. That has been a global phenomenon.
How did Covid impact the business in the region?
In the first half of 2020, we were very affected. Remember even governments shut down. But, in the later months, when we started reopening and restricting drinking hours, combined with the consumer shifts, the business started recovering. But ours is a resilient business because, even now is Covid time and we saw a recovery, which I attribute to the decisions we took.
We went on steroids in terms of innovation — innovation not just in terms of brands, but where and how we sell. We had the most launches from an innovation perspective: the gins, the beers in cans, in takeaway bottles. Across East Africa, we use e-commerce. We have a portal called Party Central, where you order and we deliver. In Uganda, we have Safe Boda. Those initiatives helped us but, more importantly, was the resilience of the people. People worked very hard. That combination plus a culture of agility and, therefore, trying different things in those circumstances, defined our success.
The Kenyan business seemed to recover fast after the lifting of the curfew. Did you do anything new?
There was a lot more innovation. There was a lot more available, like the Gin Evolution. There were more opportunities for the consumer to buy our brands and take them away. So, by the time the curfew was lifted, I think people had become tired of being closed in. And you know East Africans are social animals: We go out to socialise, actually not to take alcohol. However, people are still conscious of safety. They go where the space is bigger.
Also, we spent $5 million to support bars to stay open in Nairobi, Dar es Salaam and Kampala. Nairobi got $3 million and we’ve been using it to train staff and build infrastructure for safety. That programme is still ongoing.
What have been some of the biggest challenges for the business?
Covid. We’ve never seen such a big impact. I think outside of Covid is generally the disposable incomes. Obviously, when consumers are affected, we are affected. But the highest impact is tax. The regulatory environment tends to be very tough and we are an easy target. For example, we have this tax on every bottle, which makes beer and spirits expensive. I think Kenya has one of the highest tax for beer in the world. Every year, we adjust the tax levels by inflation. The compounding effect is disastrous. We will get to a point where even the government will start getting less tax because it’s increased so much the volumes will start crashing.
How do you find regulatory environments in the other countries?
They are not uniform but tax is the biggest challenge.
Being one of the NSE’s Big Five, are you worried about capital flight or the wait-and-see stance by investors due to the obtaining uncertainties in the markets?
I’m not worried. The thing is that in East Africa, it’s fair to say the markets are not efficient in that sometimes they don’t respond to the fundamentals. When our company does well, the shares will go up because we’re efficient. Our stock exchange is driven by many things, for example, politics. So you could do very well this year but, because there’s August 9 (polls) expectations and all the things that are about elections in Kenya, people shy away from the markets. So the fundamentals of the business could be good, but the macro … you know, we will even be affected by the Ukraine invasion by Russia.
Our business is built on very strong fundamentals, and so, looking at the past 100 years, what we’ve learnt is what we are doing today to make the business stronger and bigger in the next 100 years.
Anything special about the centenary?
Yes, there’s a lot about the brand. You will see a lot about Tusker. Our celebrations pinnacle is May. We will launch a few things that will help us set up for the next 100 years. I’m hoping that we don’t have tensions around the elections. If we allow elections to mess us up after Covid, we are dead in the water.
What is the promise that EABL is giving to its partners and customers?
Because we’ve created an ecosystem, we’re using this past century to spring to the next 100 years. What we are doing now is prepare for the next 100 years. So, we shall continue working with farmers. We’ve been working with farmers through research at Kalro (Kenya Agricultural and Livestock Research Organisation), to develop grain —barley and sorghum — so that we can have better seeds to survive the changing weather patterns. We also want to continue investing in the capability of our farmers through provision of water.
So, we will continue investing in the local supply chains, building suppliers. Right now, we are seeking gender diversity in supplies. We said we want, just like within the organisation, to ensure economic empowerment of women, particularly in the farming communities. In East Africa, we know it’s women who farm but they are not necessarily the ones who receive the cheques. We have also started working with people with disabilities.
So, on the grain part we invest in better seed varieties, invest in water, increase the amount of materials we source locally, and target women-owned businesses as our suppliers.
In energy, we’ve invested a lot of money. In 2019, we invested Ksh22 billion ($200 million) to go green. So now our biomass boilers will be fired this year. We are on solar power, so we will kick out the heavy fuel oil boilers.
We are also doing a lot of work to make sure that every glass is recycled. We have a model, where every glass is recycled. We are also looking at how we can get our spirits in the same process, we recycle via CGI (Central Glass Industries). We don’t want to take many to the landfill. That’s our commitment for the next 100 years.
We don’t pack in plastic, we only have shrink-wrap and we’re going to get rid of it. We don’t want to have plastic in our factories.
On employment, we are diverse. Our objective is to be 50:50 in gender balance by 2030. I think now we are at 27 or 28 because of historical reasons. There have been many men and they are not retiring soon. But we now have young women brewers, so we are getting there in terms of diversity and inclusion.
Last year we trained 5,000 bartenders. It’s now a well-paying job, it’s cleaner and it’s taking young men and women even to international competitions.
The bar ecosystem employs many people: think about the mama fish, the nyama choma guys, the car wash, the hawkers… As we build that ecosystem, we really want to be sustainable for the next 100 years. We must reflect how the world looks like.
I think a very important issue from a society perspective is positive drinking. What we say is celebrate life and don’t be involved in accidents or misbehave. We’ve partnered with NTSA (National Transport and Safety Authority) to provide education to people about eating and drinking and not drinking and driving.