Brewer bets on new drinks to ward off rising competition from global brands

James Waswa, an average alcohol consumer, has seen a lot of change in the drinking scene in the last decade.

Mr Waswa says the portfolio of drinks on his corner table at his local pub in Kakamega town has significantly changed.

Unlike five years ago when it would be littered with beers after beer, today there is a mix of drinks, some imported, some local.

The flavours on his table have also changed and his taste buds enjoy the variety of drinks now available at the counter.

He says with his friends, he used to just say ‘chafua meza’ a slung used when requesting the barman to arrange as many beer bottles as the table in front of them could handle.

The drinks would be delivered in crates and his crew would drink the night away.

“I don’t see a lot of that anymore. Certainly not many people still do it because there are many more drinks on offer today. Drinking habits have also changed,” he says.

The changes in consumer needs and preferences is causing breweries sleepless nights and now have to find ways of staying ahead in the market.

This has seen East African Breweries Ltd (EABL) introduce at least five new drinks as it fights to keep up with changing tastes of the Kenyan consumer.

The firm, which is also pumping billions of shillings in its research and innovation unit, says its upcoming beers and spirits will target both the high-end and the low-end segments of the market, which is now flooding by imports.

“There are customers who have acquired new tastes abroad and would like to continue with that when they come back home,” Kenya Breweries Managing Director Jane Karuku explained.

She says that though there is competition from spirits and other premium brands, beer still controls 80 per cent of the market.

Some of the new drinks it has introduced include the Hop House 13 beer, the Zinga Beer, Black & White whiskey, Triple Ace vodka to support its recent additions such as Tusker Cider that it is hopes would keep its flagship Tusker brand alive.

It says innovation is key to its growth plans and it contributed Sh5.4 billion in its first-half results.

Growth rate

Light beers are also becoming a favourite of new alcohol consumers and this has pushed it to invest heavily in Tusker Lite.

The firm, which has been struggling with flat growth in the beer market, says it will also continue experimenting on other flavoured drinks following the success of Kenya Cane, which now comes laced with various fruit flavours to lock in the millennials who are keen on tastier brands.

The changes has seen EABL’s spirits segment grow by 21 per cent in the last five years in and is expected to grow in double-digits for the rest of the decade.

But it is the beer market that is attracting most of its attention, given that it accounts for the lion’s share its revenues.

The firm says it will also increase activity in the draft and craft beer segments as part of its innovations to stay ahead in the changing trends.

Craft beer or microbrewery is a brewery that produces small amounts of beer at outlets. Craft brewers also alter elements like the amount of malt, hops or barley used, to come up with speciality beers that differentiate them at the outlets.

Draft on the other hand is usually preferred by outlets targeting the low income segments of the market and is usually cheaper. The firm has the Senator Keg beer that is the most favourite under this model. The coast region is the biggest market under this model and the firm now says some outlets in Nairobi are now installing machines to allow them serve these drinks.

Competition from imports and other local players have been increasingly eating into the market share of EABL, which is also fighting other market developments among them a high taxation regime in Kenya.

Last year, the firm paid Sh52 billion in taxes alone, making it the third largest taxpayer in the country after Safaricom and the Teachers’ service Commission.

It is however the biggest taxpayer among manufacturers in the country.

Excise taxes took the largest chunk of the taxes it remitted to the taxman last year, accounting for 62 per cent of its tax base.

This is followed by Value Added Taxes (VAT), 24 per cent while corporation taxes take the remaining 14 per cent.

Besides new products, the firm has also been selling its properties that it says are not part of its core business of making alcohol, to unlock capital to invest in its business.

Its half-year profits for the year ending December 2017 shrunk by 11 per cent to Sh4.9 billion despite selling of another property in Mombasa.

One of its worst hit product is the senator keg, which targets that low segment part of the market, whose sales contracted by 22 per cent after it increased its prices from Sh25 to Sh30 for 300ml mug.

But it is now investing heavily after the government softened its heart on the taxation regime on the product and is now building a Sh15 billion brewery in Kisumu.

The firm says the Kisumu plant will have the capacity to produce other products in future besides senator Keg if need be.

It is currently in the process of contracting 15,000 additional farmers to supply its Kisumu plant with sorghum. Its annual payments to sorghum farmers is Sh660 million and Sh1.7 billion for barley farmers.

Karuku says the firm will also fight to keep the high-end market that is witnessing the biggest shifts in consumption trends.

She says Kenya is currently the fastest growing market for scotch whiskey for its parent company Diageo in the world.

The firm says that it finds comfort in the fact that most beer consumers still prefer fresh beer as opposed to the imported beer which by the time it arrives, it will have lost some taste.

But she admits that the firm has to do more to ensure that its products match or are superior to the other imports coming in the market.

EABL’s headache will however be how to deal with parallel and cheaper importers of its premium alcohol such as Johnnie Walker at a time when consumers are turning away from the traditional beer.