Senator carves niche in cutthroat beer market

By PETER OKONG’O

Nairobi,Kenya:SUBSTITUTE: Brand has been a success in the low-end market as a cheap and safer alternative to illicit liquors

The story of Senator Keg demonstrates a uniquely Kenyan way of reinventing a company’s value chain to secure its bottom line.

Produced by Kenya Breweries Limited, Senator is estimated by some analysts to control control close to 40 per cent of the country’s regulated beer market, with a supply chain that employs over 100,000 people.

East African Breweries Limited (EABL), the parent of KBL, launched the brand in 2003, targeting people at the bottom of the beer pyramid who were making less than Sh200 per day, and largely consuming illicit liquor.

To do this, EABL had to accept a slight erosion in sales of its premium brand, Tusker, during the early stages, as an internal post-launch market survey by the company six months after Senator Keg’s launch, and seen by Business Beat, showed.

This was because some drinkers with limited average incomes shifted allegiance downwards to Senator.

KBL managing director Joe Muganda acknowledges that Senator has come a long way since its launch in 2003. The brand also owes its success to KBL opting to sell the product differently, preferring advertising at points of sale and grassroots interaction with dealers and consumers.

High taxation

“Senator represents the low income level consumer who is looking for an entry level alcoholic drink that is hygienically produced, safe to consume and affordable,” says Muganda. He notes that Senator was sold to the target market as a cheap and safer alternative to illicit liquors. But part of Senator’s success should be credited to the Government, which removed excise duty on the brand, convinced it was a viable route to dealing with the menace of illicit liquors that were depriving it of tax revenues and killing many Kenyans.

KBL also managed to lower the cost of Senator further by changing the delivery mode, moving away from bottles to kegs in November 2004. This allowed buyers to buy only what they could afford.

In a sense, Senator was EABL’s response to a social problem, but it was also a business decision. In the 1990s, the economy was in bad shape and many Kenyans who could not afford the firm’s premium brand, Tusker, had downgraded to the unhealthy liquors.

Part of the reason was the high level of taxation that put beer out of the reach of drinkers in the lower strata of the alcohol pyramid. Between 1991 and 2001, for example, sales in the regulated commercial alcohol market fell to just over 240 million litres from 400 million plus litres.

Diageo, the majority owner of East African Breweries Limited, the parent company of KBL, bought the idea that Senator was the answer to EABL’s declining beer sales at the time. Illicit liquors, largely due to the use of banned additives, tended to pack a massive and instantaneous punch but can lead blindness and death.

Bottom market

In essence therefore, Senator was a corporate social innovation and entrepreneurship strategy to capture the lower pyramid drinker.

“KBL sought to innovate a product that could target the consumers of illicit brews by providing a hygienic and competitively priced choice. We also sought to recruit the producers of the illicit brew into formal alcohol trade by providing decent outlets to act as an alternative source of income for them,” says Muganda.

The KBL MD says the high consumption of illicit brews remains a huge a problem in Kenya.

“We estimate about 50 per cent of the alcohol sales in the country involve the unregulated products which will include the traditional and illicit alcohol. This is driven by high prices of formal alcohol due to high taxation, which makes it difficult for consumers with low income to afford the formal alcoholic products,” he says. Enforcement has also been a key challenge and the Government needs to avail resources to crack down on the illicit alcohol manufacturers.

According to Muganda, Senator Keg has had a positive impact by shifting consumers from illicit drinks. He adds: “Senator has performed well since launch and we have managed to open outlets to target the bottom market while addressing the social issue that was illicit consumption. This growth can be attributed to opening up of new outlets, investment in additional keg barrels and increasing the geographic coverage of outlets within the country.”

The company is currently expanding coverage for the brand, targeting areas that previously did not have any Senator Keg outlets, which include Western, parts of North and South Rift, upper and lower Eastern regions of the country. 

“This expansion will help create more growth beyond the current 13,000 farmers that the sorghum supply chain employs,” says Muganda.

A concern for KBL remains the price-sensitive nature of Senator’s consumers. It means the firm has to constantly worry about keeping the cost of the brand well within pocket of its market.

“We anticipate that employing a price model in dealing with the tax issue may not work as the Senator consumer has little disposable income and hence will revert to illicit drinks when the price of Senator is adjusted upwards,” he notes.

As a sorghum-based brew, Senator has opened a new revenue source for farmers in the arid and semi-arid regions.

“We are currently working with over 12,000 farmers and we are continuously looking to enlist more into the programme. KBL, through our sister company East African Maltings, purchased 10,000 tonnes of sorghum in the last financial year,” he said.

However, illicit alcohol and traditional brews still constitute a huge chunk of the alcoholic beverages market in Kenya.

Muganda says some legislative and administrative measures are needed to address the issue.

“Sensitisation of consumers and law enforcement need to be conducted to educate consumers on the dangers of below the radar alcohol. Enforcement at the local level should be enhanced to deter the production of illicit alcohol,” says the KBL CEO.

“We also believe some legislative measures should be taken to allow for the packaging of alcohol in formats that can help access the consumers of illicit products at competitive pricing,” he adds.