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Another Beer War? Not Really.
Friday, 07 November 2008
With the entry of Keroche Industries into the beer market, the media has been abuzz with talk of the second beer war in Kenya after the exit of SAB Miller from the Kenyan market. But is this really the case? Albert Muriuki looks at the major new entrant to Kenya’s beer market and whether they are really a new challenge for regional market leader East Africa Breweries.

A few kilometers out of the city center of Kenya’s capital Nairobi, on Mombasa road, towards the Jomo Kenyatta International airport, are huge aluminum containers outside a nondescript low roofed building. This is the Sierra lounge, bar and brasserie. This micro brewery is perhaps an indication of the gradually changing beer market scenario in Kenya where East Africa Breweries Limited (EABL) have long held a position of overwhelming dominance. Sierra, whose range of beers includes Sierra Amber, Sierra Blonde and Sierra Stout, may not yet be eating into the top end market segment of EABL’s products, but it introduces the concept of a high-end premium product. Targeted at the top end segment of the beer market, drinkers of the beers swear by its 'clean crisp natural taste'. “Sierra beers have a much better taste than other beers in this market, they are less fizzy   that gets me all the time,” says William Pike, the Managing Director of popular Nairobi newspaper, The Nairobi Star. “The beer has far less additives than any beer in the market and that too appeals to me” he adds.

But it is not just the top end of the beer market where things are stirring. In the opposite direction, in the town of Naivasha, is the formidable Keroche Industries who have also set up a brewery, one that is aimed largely at the mass market Keroche industries Take on Market Giant EABL. Keroche has invested KES1bn, funded by a loan from Barclays International, in its beer plant in Naivasha. It employs 100 workers and has a 40,000 bottle-per-day capacity. Although new to brewing, the company already has experience in the alcohol business, selling fortified wines that had mass appeal in the down end of the market. A change in the tax regime of fortified wines by the Kenya Revenue Authority (KRA) forced the company to stop producing the wines as the tax burden was making it unprofitable to continue manufacturing. With a new beer called ‘Summit,’ Keroche is aiming for middle class Kenyans, the usual target group for Tusker, EABL’s iconic flagship beer.

Market Dominance

Literally in the middle between Sierra and Keroche, on Nairobi’s Thika Road, sits EABL, East and Central Africa's largest brewer. Set up in 1922 by George and Charles Hurst, the company has become one of the biggest success stories of capitalism in Kenya and the second largest tax payer in 2008. According to Euromonitor, EABL lead in beer sales in 2006 with a 96% share of the market. The company has a presence in three East African countries, Tanzania, Uganda and Kenya, and also in central Africa.

And despite the buzz of a new beer war, the figures tell a different story: On beer production alone, EABL has a 176,000 bottle-per-hour capacity at its Nairobi plant. Two weeks after its official launch, ‘Summit’ beer is still making slow progress on the retail shelves. EABL’s distribution network is legendary, and word on the street is that EABL has given strict warnings to its distributors and outlets that they would stop supplies, and take back their accessories, if the retailers were to stock Summit alongside EABL’s products. Given this sheer market dominance, it is unlikely that Kenyans would see a repeat of the beer wars of the magnitude of battle between SAB Miller and EABL. This time round, the new entrant is clearly short of a war chest to put up a serious fight against EABL.

Sierra is said to have cost slightly less than KES500m to set up, and the company does not have an aggressive marketing strategy and is mainly sold in Nairobi and Mombasa and then, mainly in supermarkets and not bars. Maxam, the distributors of Heineken, are a family business and, according to press reports, have invested some KES20m in building a distribution infrastructure for Heineken, while marketing has taken up KES25m.

Playing in a Different League

When it comes to money, EABL simply plays in a different league: It announced a pre tax profit of KES12.3bn in its end of year results for the period ending 30 June 2008. This was an increase of 16% from KES10.6bn in 2007. Net turnover went up 26% to KES32.5bn, from KES25.9bn in 2007. With this kind of money, Keroche industry will be nothing much but an irritant to the giant in the foreseeable future.

Changing the drinking habits of Kenyans will not be an easy task either, according to Consumer Insight, a Nairobi based research firm: The leading brands drunk by Kenyans are all from EABL, Tusker, Guinness and Pilsner. And according to Euromonitor, EABL still remains the number one brewer and the market leader for alcoholic drinks, distributing nearly 90% of all branded beer and Tusker the top selling lager in East Africa.

Such market dominance means that changes will, if at all, only happen very gradually. However, young professionals in Kenya are more open to experimentation, especially in some high end pubs in the city. David Mugambi, a Business Development Manager with Golden Dreams (Kenya) Ltd-a film production company, swears by a cold Heineken and drinks nothing else: “You know, this beer only has water and barley, gives me no hangovers, you try some of the others till four am and see if you will get up that day!”

Ironically, EABL had entered a joint venture in 2005 with the Dutch brewer making the Kenyan company Heineken’s sole importer in Kenya and Uganda. That deal fell through and since then, Maxam, a Kenyan based company, took over and is currently distributing and selling the beer countrywide. Aimed at the emerging upper class of Kenya, analysts say that Heineken has indeed eaten into Tusker Malts market segment, the flagship top end beer from EABL. But with its limited penetration in the country, this too is little concern for EABL, Tusker Malt still holds sway in major towns around Kenya.

Perspectives

In the long run however, although EABL looks set to continue its dominance of the market, the new entrants in the market will still be able to get a share of Kenya’s lucrative beer market. According to Euromonitor, there is likely to be increased investment in the alcoholic drinks market as a result of continued growth in the Kenyan economy. 2008, with the post-election crisis, followed by the international financial crisis, will push Kenya’s previously accelerating GDP growth rate back down to 3.5% to 4%, but it is expected to return to its previous growth track in the coming year. With 55% of the Kenyan population aged between 15 and 64 years old, the opportunities are therefore extensive: “This provides a ready market for alcoholic drinks as well as labour for the alcohol industry. The fact that more Kenyans are being employed, both women and men, and more are investing in small businesses will increase disposable incomes and therefore boost growth in the alcoholic drinks market,” says the research firm.

Euromonitor estimate that 74% of Kenyans consume traditional brews, and only 24% manufactured beer and 2% consume wines and spirits. Despite EABL’s persistent grip on the market, the overall growth potential is enormous, which gives new players space. Apart from Sierra, Heineken and Summit, brands of beer competing with EABL brands include Bavaria, brewed in Egypt, Stella Artois, Windhoek, Carlsberg and in few up market establishments, small quantities of Belgium beer, Duvel. However, EABL is likely to keep a closer eye on mass-market competitors than on up-market, niche products.  
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