Brewing beer fight

By Kenneth Kwama

The region’s brewing scene is set for a bruising battle as brewers seek dominance over each other.

East African Breweries Ltd (EABL), the region’s alcohol producer, has unveiled a strategy aimed at taming costs to improve its bottom line as it seeks to ward off an unsavoury assault on its forte by bitter rivals SABMiller of South Africa and a host of other players.

Seregenti Breweries plant. The Sh4.9 billion facility can produce up to 40,000 bottles per hour and will greatly shore up production of several brands under EABL’s stable. [Picture: Courtesy]

SABMiller guaranteed its presence in the country after it acquired Crown Beverages, thus taking control of Crown Foods - the bottlers of Keringet drinking water - while Ozzbeco Kenya Ltd, which manufactures the Sierra range of beer has also increased the visibility of its products in the past few months. By the time the two brewers arrived at the table, Keroche Breweries had been punching above its weight for a few years, trying to unsettle the giant brewer through its Summit-branded beers.

Having been assured of a market for their products, the brewers seem to be employing diverse strategies to defend and grow market share. Last month, SABMiller that has found it difficult to entrench itself in the Kenyan market before, announced a promotion for its two canned products, Redds and Castle, seeking to reward distributors and bar owners who buy in bulk.

EABL has unveiled Tusker Lite and reintroduced Pilsner Ice in the Kenyan market, while Ozzbeco Kenya has launched Sierra Platinum beer.

REGIONAL BASE

Global brewing giant Heineken has set up its regional headquarters in Nairobi to help increase the visibility of its brands. The Dutch brewer, which recently bought breweries in Ethiopia and Rwanda, supplies Heineken beer through local distributor Maxam Ltd.

In Tanzania, EABL through its Tanzanian subsidiary, Serengeti Breweries has commissioned a new brewing plant. The Sh4.9 billion facility can produce up to 40,000 bottles per hour and will greatly shore up production of several brands under EABL’s stable.

But the biggest news in the Tanzanian adventure is not in the plant, but the fact that the brewer could accelerate its growth momentum on Tanzania. EABL Group Managing Director Seni Adetu last week said the company was looking to make Tanzania a key source of the raw materials used in the manufacture of alcohol.

"Our goal is to make Tanzania a net exporter of sorghum in the next few years. This will guarantee stable income for thousands of farmers, provide staple food and also guarantee raw materials for our plants in Kenya and Tanzania," said Adetu. If successful, the move could greatly help the Ruaraka-based firm substantially cut production costs and eventually enable it to leverage on prices to stay competitive. Breweries across the globe have been battling with rising operational costs driven by rising cereal prices.

The price of barley increased from Sh6,600 per tonne in 2005 to Sh13,000 per tonne early this year in the international market.

The prevailing high cost of barley and malt, which are key raw materials in the manufacture of alcohol has played a part in slowing down the earnings across the industry, which explains EABL’s efforts to cost cut.

Cheaper sorghum-based beer will allow the company to capture a huge chunk of the bottom end market that has remained in the hands of illicit brewers.

EABL uses sorghum to brew the low-cost Senator brand, which was launched in 2004 and delivers volumes but less value compared to flagship Tusker, White Cap and Pilsner brands.

Tanzania has huge swathes of land suitable for agriculture, but has never been fully exploited. EABL’s proposal to promote the growing of sorghum in this land and turn the country into a net exporter of the commodity has got the government excited.

Tanzania’s Prime Minister, Mizengo Pinda says EABL’s investment through Serengeti Breweries Ltd (SBL) is good for the economy. He says it will unlock trade potential and help serve both Northern Tanzania and Southern Kenya markets.

"Personally, I will support the initiative because it is good for our country and the region. This is a powerful demonstration of the huge opportunity that exists in East Africa and a clear testimony to other private sector investors of what can be achieved when you combine strong will and confidence," said Pinda. The battle for the Tanzania, Uganda and Kenya beer markets has intensified in the past two years as two of the world’s largest breweries pump in millions of dollars in new investments.

SABMiller is also rolling out a $120 million investment in its Tanzania and Uganda subsidiaries as it seeks an edge over Diageo. The Diageo Plc-owned EABL regarded as the aristocrat of Kenya’s beer industry has been bidding for the Tanzanian market through SBL where it has acquired a controlling stake.

Two other contenders for the market, Ozzbeco and Keroche have never been regarded seriously in the tussle owing to their sizes. The former owns a brewery along Mombasa Road, while Keroche has not quite grown past the hype it first created when it commissioned a Sh1 billion brewing plant about three years ago in Naivasha.

TURF WARS

Besides the battle for the regional market, which pits EABL against SABMiller, all the other players are jointly locked in a fierce war over control of one of the Kenyan market- one of the most attractive liquor markets in the region.

Unlike EABL, which has a vast distributorship network, the other players could be starting at a disadvantage because they lack some advantages accrued by dominant market player.

The tradition of consumers identifying with particular brands of beer in particular markets also signifies the existence of other indigenous chains, which had possibly built up strong reputations and this could toughen penetration for new beer brands.

"Again, after the launch of new products, effective 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 push up the expenditures of EABL’s rivals," said an official with one of the new players who requested not to be named.

History and statistics favour EABL, but the fact that SABMiller has vast experience drawn from other markets and financial muscle should have executives at Ruaraka thinking of other ways to guard their turf.

Tanzania seems to be part of a key defence strategy. The Moshi-based brewery is the third in Tanzania for Serengeti, which is 51 per cent-owned by EABL and will boost its total production capacity by 55 per cent to over 1.4 million hectoliters a year. Adetu expressed confidence in the plant’s potential to improve shareholder value.

"Besides the capital injection in this plant, the investment in integration and system upgrade makes the Group well poised to consolidate its position in the Eastern Africa region. We have made this bold investment with confidence that SBL has bright prospects for the business and will contribute to the Group as one of our key future growth drivers," he said.

SBL has other brewing sites in Dar es Salaam and Mwanza. The newly established $55million brewing facilitycan produce up to 40,000 bottles per hour.