Is Africa still good for global brewers?

A Guinness branded-pump at a pub in south-west London. Diageo, the world’s biggest spirits group, owns Guinness. FILE 

By PETERSON THIONG’O, The EastAfrican

In Summary

• Growing competition, tough laws and reduced spending are setbacks.

Global brewers Diageo and SABMiller are struggling to grow their sales volumes in Africa in the face of rising competition, tough regulatory environments and constrained consumer spending.

Announcing its results last week, SABMiller, the parent firm of Tanzania Breweries Ltd (TBL), said its beer volumes in Africa grew at 6 per cent in the first six months of the year, against a target of 15 per cent.

“Beer volumes in Africa rose 6 per cent, less by a 9 per cent anticipated improvement, and South African lager sales slid 2 per cent amid a weaker economic environment,” said SABMiller in a statement.

“Political unrest in Mozambique and soft economic conditions in Uganda and Zimbabwe offset improvements in Tanzania, Zambia and Nigeria.”

Diageo said its sales in Africa grew by only 1.3 per cent in the quarter ending September, against a target of 13 per cent.

The two giant brewers dominate the formal alcohol business in the East African region through their subsidiaries and distribution arrangements in Kenya, Uganda, Tanzania, Burundi and Rwanda.

Diageo-controlled East African Breweries Ltd (EABL) recorded a 37.9 per cent drop in profit after tax for the full year ended June 2013, to Ksh6.9 billion ($79.3 million), reflecting increased debt repayments.

READ: After dip in profits, what recovery plans has giant brewer put in place?

The company borrowed Ksh19.5 billion ($224 million) in November 2011 to buy a 20 per cent shareholding in Kenya Breweries Ltd (KBL) from SAB Miller Africa B V, making KBL a wholly-owned subsidiary of EABL.

On Thursday last week, EABL launched a Ksh5.4 billion ($62 million) Commercial Paper — the country’s largest — a move analysts at Standard Investment Bank (SIB) say was driven by the need to cut financing costs.

“We think the brewer has opted for the CP in order to reduce the cost of its existing debt obligations,” said SIB.

Geoffrey Maina, a research analyst at Old Mutual Securities said this debt repayment plus the introduction of excise duty on Keg could impact on profits.

The low-end Keg is EABL’s largest beer brand by sales volumes, and was previously exempt from excise duty. The firm said sales dropped by 80 per cent following the new 50 per cent tax on the beer — translating into Ksh35 ($0.4) per litre, given that the Kenya Revenue Authority charges Ksh70 ($0.8) per litre excise duty on all beers.

This forced EABL to increase the price of a barrel of Keg Senator from Ksh3,146 ($36) to Ksh6,544 ($75.21).

READ: EABL to launch new beers for low-end market to fight off rivals