Incredible growth of Kenya’s beer market

Incredible growth of Kenya’s beer market

Driven by strong population growth, a growing middle class, and a dynamic private sector, the beer industry in Kenya has taken off in impressive ways, and is promising of even further developments in the coming decade. The potential risks however to be factored in by stakeholders is inflation and tax increases.

East African Breweries

While still the dominant producer in Kenya, East African Breweries Limited (EABL, a subsidiary of Diageo) has seen competition intensify in recent years from small local brewers and imports of international brands such as Heineken and SABMiller. That said, East African Breweries still controls around 90% of the Kenyan beer market, and continues to expand into the rest of East Africa.

A glance at the company’s subsidiaries acts as confirmation of this: Kenya Breweries Limited, Uganda Breweries Limited, Serengeti Breweries Limited, United Distiller Ventnor, Central Glass Industries, and East African Malting Limited. EABL is listed on the Nairobi, Uganda, and Dar es Salaam stock exchanges. The company has invested in new supply chain capacity, including a new canning line, in order to boost production levels. East African Breweries has 26,000 local partners across the value chain, and sources 10,000 tonnes of sorghum in Kenya (from only 400 tonnes four years ago), while two new varieties of high-yielding barley seed were recently launched.

A focus on spirits

A big focus for East African Breweries is to boost the spirits penetration rate amongst East African consumers; the company has accordingly invested in marketing and sales capabilities in this area.  While its ‘mainstream’ brands remain the most popular, the company expects consumers to trade up over time as incomes rise. East African Breweries stated in its 2012 annual report: “As our economies develop, we expect that more consumers will trade up from home brews and unbranded alcohol into branded products. The size of this opportunity is considerable. This trend has already driven significant growth for Senator Keg in Kenya, and we are in the process of rolling out Senator in bottles in our other markets.”

With regard to spirits, the Johnnie Walker brand expanded by 74% across East African Breweries’ markets in 2012, Smirnoff by 55%, Baileys by 82%, and Richot by 40%. Although spirits still account for only a small share of overall alcohol consumption, the sharp growth is notable. Interestingly, mainstream spirits performed poorly for East African Breweries in 2012 (with sales falling by 6%), while emerging, premium and reserve spirits sales grew by 32%, 22% and 276%, respectively. The same trend was noticed for beer: sales of mainstream beer increased by only 3%, while that of emerging and premium beer expanded by 12% and 18%, respectively.

East African consumers appear to have ‘traded up’ in the alcohol market over this period, with some consumers switching from home brews to entry-level branded products, and others from mainstream to premium brands, although admittedly some may have switched from mainstream to emerging brands due to pressure on purchasing power. East African Breweries recently introduced its Tusker Lite brand due to an increasing “taste for products that are low in carbohydrates” among young adults. This contributed to a 17% growth in the Tusker brand in 2012. Meanwhile, Pilsner Ice was rebranded in order to appeal to modern young adult males, while the new SNAPP is aimed at young working women.

Challenge of tax changes

Most recently, the alcoholic beverages market in Kenya was hit by tax changes, namely a change in the value-added tax (VAT) bill, and a reduction in tax incentives for EABL’s Senator Keg brand. According to EABL, volume sales of Senator Keg declined by 85% after the increase in excise duty on 1 October 2013, and this resulted in the closure of 3,000 outlets, with 3,000 more reportedly in danger of being closed. While being negative for EABL, the tax increase does open up opportunities for other companies active in the Kenyan beer market, although EABL is trying to offset the fall in demand for Senator Keg by promoting its other brands.

Although EABL clearly dominates, competition in Kenya’s beer industry has increased in recent years, as both macrobrewers and microbrewers attempt to take advantage of naturally expanding markets. At the end of 2012, Keroche Breweries (Kenya’s only local brewery) stated that it plans to raise its share of the beer market in Kenya to 20% (from around 3% currently) in two years, and is increasing capacity to meet that target. This includes the construction of a brew house with an annual capacity of one million hectolitres, which is expected to be completed by the end of 2014 at an estimated cost of US$29.4 million.

Apart from boosting production of existing brands, the company also plans to start producing other products that are not currently in its portfolio, such as stouts and non-alcoholic drinks. Keroche also plans to expand into Tanzania, Rwanda and Uganda over the medium term.

David Okwara

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