What you need to know:
- On Tuesday, EABL was temporarily stopped from appointing another distributor on the supply routes of its single-largest distributor – Bia Tosha.
- In April, Joviet Kenya Limited, the distributor of Bavaria Beer, sued the Dutch brewer seeking to stop it from appointing another firm to distribute the product locally.
- UDB is ranked the third-largest beer group in the Netherlands after Heineken and Bavaria; with annual turnover grossing Sh8.6 billion on volumes of 1.2 million hectoliters last year.
The stage is set for another round of beer wars as alcohol manufacturers appear to be preparing for what could be a gruelling, ugly and bare knuckled fight for the control of Kenya’s lucrative alcoholic drinks market – a duel that promises a replay of a similar battle a decade ago.
“Beer Wars 1” as it was known, was a vicious fight between regional brewing giants East Africa Breweries Limited (EABL) and SAB Miller that ended in the acrimonious exit of the then South African brewer in 2002.
The company eventually made a comeback in 2012 after being bought by SAB Miller PLC of UK and has been making an onslaught against its former partner turned bitter rival.
In the last few months, however, the war drums have begun and progressively grown louder as foreign beer manufactures enter the local market one after the other seeking to quench the thirst of Kenyan drinkers who are becoming increasingly sophisticated.
Netherlands’ third-largest beer maker, United Dutch Breweries (UDB), which entered the country two weeks ago, is the latest entrant in a market whose battle for control is increasingly shaping up as a war between local and international brewers.
The company, which hopes to shake up the premium market with its key brands such as Royal Dutch Posthorn, Atlas and Trio Stout, is the third international brewer to set shop here in just 15 months.
The warm up to this war, which is being fought in bars through endless promotions and price cuts, billboards and the media, has already found its way to the courts signifying interesting times ahead as brewers try to control their turfs ahead of the real duel.
On Tuesday, EABL was temporarily stopped from appointing another distributor on the supply routes of its single-largest distributor – Bia Tosha.
The distributor told the court the Diageo owned brewer had threatened to terminate its distribution contracts for 22 routes.
“As a friend let me just say you’re taking some pretty bad decisions. Playing chicken with a multinational is really the wisest business negotiation tactic. Unless of course BT (Bia Tosha) is no longer that important to you,” one of the messages Bia Tosha claims it received reads.
The case between the distributor and the brewer, which is set to start proper on June 28, is the third such conflict over distributorship deals to end up in the corridors of justice pitting manufacturers and their distributors.
In April, Joviet Kenya Limited, the distributor of Bavaria Beer, sued the Dutch brewer seeking to stop it from appointing another firm to distribute the product locally.
The Kenyan-owned distributor wants Bavaria NV – the second largest brewery in the Netherlands, to compensate it for investments it made to sell the brand before the distributorship deal is transferred to another party.
Nevertheless, despite its case with Bavaria NV, Joviet has already signed a deal with UDB and will be its key distributor and is expected to use its countrywide distribution network to ship its new partner’s brands to retail points.
The company says UDB’s Atlas range of strong beers in particular will find favour in low income earners.
“It is ideal in curbing the use of illicit brews and second-generation liquor because taking one is like taking three to four normal beers at the price of one,” Daniel Munene, the proprietor of Joviet, says.
And in February, Maxam Limited, another Kenyan distributor with two others from the East African region, sued yet another Dutch brewer, Heineken, seeking to stop it from terminating exclusive distribution contracts with them.
EABL, which successfully fought off SAB Miller in the past and managed to contain local brewer Keroche’s onslaught enabling the brewing giant to stay in control of the Kenyan market, now finds itself fighting against bigger opponents who not only have global operating experience but also more financial muscle.
UDB is ranked the third-largest beer group in the Netherlands after Heineken and Bavaria; with annual turnover grossing Sh8.6 billion on volumes of 1.2 million hectoliters last year.
It is banking on its five century brewing experience and pricing strategy to win market share in Kenya.
“Kenya is an exciting market. The variety of our product portfolio ensures that we have drinks that are affordable across all market segments. There is something for everyone,” Mr Sander Bos, UDB sales manager for Africa, says.
The company was until 2007 the export department of Belgian brewer Anheuser-Busch InBev (AB InBev) – the world’s largest brewer – but was carved out in 2007 as an independent company.
On its part, AB InBev recently bought SAB Miller (The world’s second largest brewer) for $108 billion (Sh10.8 trillion) with a particular interest in the gains from the growing African market.
The company entered the Kenyan market through its flagship American brand Budweiser in March last year, just a month after Danish brewer (and world’s third largest) Carlsberg, made its entry through investment company Centum.
The Sunday Nation understands that alcohol consumption and production in Kenya and parts of Africa has overtaken Europe and the US due to rapid economic growth and a surge of the middle class.
For instance, manufacture of beverages grew by 22 per cent in 2015 mainly driven by production of spirits and beer, which went up by 27.9 and 28.9 per cent respectively, according to data released last month by the Kenya National Bureau of Statistics (KNBS).
DROP IN SALES
On the contrary, "people in Europe are drinking 8.5 per cent less beer than they did before the recession and production has dropped by six per cent in the region," according to a 2015 study by global consumer and industrial market research company Euromonitor.
With sales dropping in their traditional markets in the West, brewers have suddenly shown interest in the African market which has for a long time been EABL and SAB Miller’s playground.
EABL, in particular, has a firm grip of the Kenyan market controlling at least 90 per cent.
But its mainstream beers appear to be taking a beating while consumption of its premium beers experiences a surge. Sales of Tusker, which is Kenya’s most popular beer, dropped 4 per cent according to the company’s half year results released in February.
The results also said there was a drop in consumption of 10 per cent in mainstream beers while premium beers like Guinness and Tusker Light rose 10 per cent.
A similar pattern was recorded in the 2015 annual results where mainstream beers dropped by two per cent while premium beers rose 17 per cent.
Interestingly, it is this growing premium market that the global beer giants appear to be targeting. But instead of starting green field projects, all of them are importing finished products through their distributors.
This business model is creating an environmental challenge as the unreturnable bottles end up in dumpsites as recyclers consider them as worthless, something that is concern even to the distributors.
“While the glasses for now are non-returnable, there exist a thriving glass recycling business in Kenya,” says Centum chief executive James Mworia.
This strategy is largely seen as a way of minimising risk by first testing the waters because manufacturing in Kenya is considered costly.
A number of global firms such as Reckitt Benckiser, Procter & Gamble, Bridgestone, Colgate Palmolive, Johnson & Johnson and Unilever have in the last few years closed their production lines in the country.
Last year, Heineken overlooked Kenya and decided to set up a Sh10 billion factory in Ethiopia. The beer already has three breweries in Ethiopia (in Kilinto, Bedele and Harar), two in Rwanda (Bralirwa) and two more in Burundi (Brarudi), which produce tens of brands except its flagship beer.
The Dutch brewing giant - which recently began importing another brand to Kenya, Desperados, a tequila flavoured beer - is non-committal on whether it will set up a factory in the country.
“This is related to our business strategy on which we do not communicate in detail per country. Please, howeve,r do note that we want to make sure we are driving a responsible business and that whenever we see a risk, we are looking at solutions,” it said in an e-mail to the Sunday Nation.
However, Centum, which imports and distributes Carlsberg, which it says is being received well by the market, has a different strategy.
“Kenya’s appetite for imported beer is increasing and we do intend to commence local bottling of Carlsberg beer in the medium term. It will happen,” Mr Mworia says.