Inflation may finally be hitting a Kenyan staple that has long been considered to be immune to recession - beer.
This has emerged as East African Breweries Ltd (EABL) revealed Thursday its net profit dropped by 0.39 per cent in the six months to December on the back of higher taxes and input costs, and as price-sensitive consumers shunned the frothy drink.
EABL - which is controlled by Britain's Diageo and is known for its flagship Tusker beer - saw its net earnings decline by Sh34 million to Sh8.703 billion in the half year from Sh8.737 billion booked in a similar period in 2021.
EABL Group Chief Executive Jane Karuku said inflation and higher taxes afflicted the brewer by reducing consumers' purchasing power even as input costs jumped due to high costs of ingredients.
"We have witnessed a slowdown in economic growth across the region, with steep excise tax increases in Kenya adding to the heightened inflationary pressures," she said in a statement.
"As a result, consumer spending power is depressed and operating costs have increased significantly."
Revenues from Kenya dropped by one per cent in the period, even as revenues in Uganda and Tanzania grew by 19 per cent and 11 per cent respectively to help offset the poor performance in Kenya.
The brewer's total sales consequently jumped to Sh104.6 billion, or 8.08 per cent from Sh96.8 billion a year earlier.
"EABL faced an exceptionally tough time related to macro-economic volatility across East Africa, global inflation and geo-political disruptions related to the Russia-Ukraine war," said Karuku.
"This was further compounded by excise-related price increases in Kenya, which significantly affected consumption of our brands."
Despite the lower performance and the gloomy outlook, the Nairobi Securities Exchange-listed firm has declared an interim dividend of Sh3.75 per share, similar to the same period last year, offering something to smile about to its shareholders.
"The board of directors has recommended an interim dividend of Sh3.75 per share subject to withholding tax, to be paid on or about April 28, 2023 to shareholders registered at the close of business on February 16 2023," it said.
Kenya's inflation rate has remained stubbornly high just as throughout last year as food prices soared, remaining above Central Bank of Kenya's target range of between 2.5 and 7.5 per cent.
This has forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from Covid-19 economic hardships and confront the Ukrainian war's global economic fallout.
The rise in the cost of essential commodities has forced workers to cut back spending on non-essential items such as beer and airtime, ultimately hurting firms such as EABL and Safaricom.
EABL said multiple excise tax increases in Kenya over the past 15 months have exacerbated consumer prices and have particularly impacted price-sensitive consumers in mainstream and value segments.
"The adverse impact on volumes denies government potential revenues and has a compounded effect on the livelihood of farmers and the small businesses that support our value chain," the company said.
"While near-term volatility is expected to persist, we remain focused on executing against our strategy and delivering long-term sustainable growth."