Beer wars: Keroche confident despite managers’ exodus

By Kenneth Kwama

Barely five months after the successful launch of its iconic beer branded Summit Lager, the Naivasha based-Keroche Industries Ltd is undergoing what is probably its vicious test yet.

The firm, whose owner and Managing Director Tabitha Karanja, has inspired hundreds with her irrepressible entrepreneurial spirit, is finding the mainstream branded beer market a totally different kettle of fish.

This may have led to the departure of a number of high-profile employees from the company and ignited a fierce war of words between the firm’s management and its competitor, East African Breweries Ltd (EABL), which it has accused of sabotaging its efforts to reach out to the wider market.

However, if the folks over at the Diageo Plc-owned EABL — regarded as the aristocrat of Kenya’s beer industry — are rubbing their hands in glee at the news of their unacknowledged rival’s perceived woes, then they are keeping it rather quiet.

Understandably so, since Keroche has been written off before, only to bounce back.

Keroche is blaming its current problems on what it claims are ‘dirty’ tactics by its main rival. Early this year, Karanja wrote to her nemesis at EABL, Gerald Mahinda to register her disappointment over the destruction of her company’s advertisement posters by people, she explained she had reason to believe were employees of EABL.
"This is therefore to appeal to your good self to restrain your people from engaging in activities that we do not only consider to be immoral, but also criminal," reads part of the letter.

‘Too outrageous’

EABL’s Corporate Communications Director Ken Kariuki confirmed his boss’s receipt of Tabitha’s stinging letter, but declined to comment on the accusations, only saying that EABL chose not to respond, because the allegations were "too outrageous".

Shortly after the letter reached EABL, word leaked out that Keroche was at loggerheads with a Nairobi-based outdoor advertising firm it had contracted to distribute and place its beer posters in strategic bars across the country, over non-payment for services the firm had rendered.

The MD of the outdoor advertiser-Magnate Ventures, Stanley Kinyanjui declined to comment on the allegations, but explained that the contract between his company and Keroche had ended and the relationship was a client-customer thing, which he wasn’t willing to discuss.

"Again, it is difficult to tell whether Keroche owes us any money or not because it is just one of the several accounts that we hold.

The accounts are handled by different account managers, so it is a bit difficult to say exactly what goes on there," Kinyanjui told FJ.

Employees resign

In the past two months, nine senior employees, including Human Resource Manager Rose Kamuri, Head of Sales and Marketing Catherine Kihanya and Dickson Mwangi, who was the immediate former Head of Production- Spirits, at Keroche, have either resigned or been sacked under unclear circumstances.

Allegations have been rife that some of the high-profile managers could have left because Keroche could not meet the high-salaries it promised them on recruitment. However, this could not be independently confirmed. Still, Kamuri’s departure raised the biggest storm because of speculation that she could have been fired after some employees went on strike to protest non-payment of salaries.

But while admitting that the market is yet to embrace its premier beer-Summit Lager the way she had expected, Tabitha says the departure of the said employees had nothing to do with the beer’s performance in the market.

"It is true some of them resigned on their own volition, but others were dismissed because they could not deliver according to our expectations. But I would like people to know that there has never been anything like non-payment of salaries. This place is too small for such," says Tabitha.

Tabitha says it is wrong to blame her for these employees’ decisions, because some left on their own volition. She claims that others like Dickson crossed over to work for EABL.

Lucrative liquor market

She, however, contends that it is still too early to write her off in the beer market.

"Even our competitors started small, with drips of barrels. We could be on the same path, and that is not a bad experience to have at all," she laughs.

The tussle between the two beer companies is being fanned by byzantine manoeuvrings, spin and counter-spin, and old grudges. The tale is also long on thwarted ambitions and what could at best pass for a game of ping-pong.

The two beer companies are locked in a fierce war over control of one of the most attractive liquor markets in the region. About 10 million Kenyans drink alcohol with the average Kenyan drinker guzzling an amazing 12.6 litres (25-500ml bottles) of alcohol annually.

Unlike EABL, which has a vast distributorship network, supported by a well-laid transportation system, Tabitha says that Keroche’s customers have not had the opportunity to access Summit Lager the way they should because of ‘regular stock outs’, which she believes is not her company’s supply chain’s failure, but man made.

"There are occasions you find customers asking for Summit in bars and barmaids refusing to sell, because they were instructed not to. We are fighting several wars, but we are confident to stay the course and win," she says.

Unlike EABL, which has three bottling facilities, Keroche has only one bottling plant located in Naivasha, which means that EABL is able to enjoy larger economies of scale, and pass off the benefits to the kind of consumers in the low-end beer market that are also targeted by Keroche.

Indigenous chains

The tradition of consumers identifying with particular brands of beer in the country means the existence of other indigenous chains, which had possibly built up strong reputations before Summit Lager became a player in the market, and this could have toughened penetration for Keroche.

"If indeed, Keroche’s new beer is struggling, it is not difficult to understand why because Kenyans also tend to experiment a lot with the new. It’s like the fashion industry. People may love a drink for some period immediately after its launch, and then shun it totally thereafter.

The initial reaction could have misled Keroche to think it had a hit," opined a highly placed source within the industry who requested not to be named. "Again, after the launch of new products, proper penetration usually comes with high transportation costs and heavy expenditure on advertisements because of the need to reach large parts of the country. This could have also pushed up the company’s expenditure," said our source.

Keroche could have also fallen victim to wrong timing, because the launch of its beer coincided with a massive increase in taxation of beers and spirits, which the government introduced late last year.

The downturn in consumer spending due to the general economic slowdown could also have played a part. Low production costs also determine the ability to wage the kind of bitter advertising and price wars that detonated late last year, following the launch of Summit Lager.

Brutish price tussle

EABL responded by offering massive retail discounts on low-end beers such as Citizen Lager. It even went ahead and pitched the battle with a special edition of lager, which it christened Senator.

The brutish price tussle late last year might have served notice on the Naivasha-based firm, and Keroche must have realised that while the Kenyan economy can offer excellent growth opportunities, making money was not going to be as easy as it may have seemed.

The firm invested close to one billion shillings in the new beer plant, built by German and Italian engineers. So far, the plant is still underutilised, because it has capacity to produce 30 different types of drinks.

Tabitha says her company will in the next two months launch a malted drink, to be followed by stout before the end of this year.

The new venture is expected to increase the new machine’s utility value. The plant has capacity to produce up to 6000 half-litre bottles every hour.

Although still shy to talk about her beer’s market share, Tabitha says she still hopes to reach the 25-35 per cent threshold countrywide.

"We want to become the most efficient beer manufacturer in the country so as to supply quality products at accessible and competitive prices," she says.