Keroche’s Sh5.5bn expansion brews battle for beer market

The Sh5.5 billion Keroche breweries expansion is set to heighten competition in the beer market with  East Africa Breweries Limited likely to be the biggest loser.

Keroche’s new brewing plant is projected to increase production tenfold putting the Naivasha-based firm in position to fight for at least 20 per cent of the local beer market.

“We have invested Sh5 billion and expect a production capacity of 600,000 bottles a day ... we have positioned ourselves strategically to expand the local market share and also to venture into the East African market,” Keroche breweries CEO Tabitha Karanja said.

EABL gets over 60 per cent of its net sales from Kenya and controls nearly 90 per cent of the beer market share.

However, this is likely to change. UK-based SABMiller, which shut down its Thika plant and exited Kenya in 2002, has since launched several beer brands locally through Crown Beverage Kenya. These include Castle Lager, Castle Milk Stout, Redds, Castle Lite and US brand Miller Genuine Draft.

Apart from its financial muscle, SABMiller has a long experience in brewing and is one of the world’s largest brewers by volume with over 200 brands and distribution deals in 75 countries across six continents.

HUGE DEMAND

SABMiller’s subsidiary, South African Breweries, runs seven breweries and 40 depots in South Africa with an annual brewing capacity of 3.1 billion litres. Its full brand portfolio includes 10 beers and five flavoured alcoholic beverages.

Kenya has also seen the entry of three other foreign liquor brands in quick succession in the last six months, all eyeing the pie that EABL has been enjoying for decades.

Danish brewer, Carlsberg Group, recently signed a distribution deal with Centum for its premium beer, which targets the middle class. The firm could establish a plant locally later in the year.

Carlsberg, ranked the world’s fourth largest brewer, made about Sh697.78 billion net sales in the nine months to September 2014, from its portfolio of 500 brands.

Centum imported the first consignment of Carlsberg beer in September, and has quietly established a countrywide distribution network.

And just last month, American Budweiser, one of the world’s biggest selling beers, entered the market. It will be distributed by Viva Global

“Lots of Kenyans come across it in the US and Dubai. It is a brand in huge demand,” said Viva business development manager Meera Karia. Viva said a trial was run in the market for two years to test Budweiser’s reception.

Beer company Heineken recently unveiled Desperados, a Tequila-flavoured beer, in Kenya. First launched in France in 1995, Desperados is now available in 66 countries with France, Germany and the UK being the top markets. It is expected to compete in the premium lager market with Tusker Malt and Summit Malt.

The new brands are set to tilt the local beer market that has been in favour of EABL. The brewer, however, says entry of new firms does not threaten its market share.

EABL’s head of communications Joseph Sunday told Smart Company that the local market is still big enough to accommodate rivals.

“Competition is healthy and welcome. The informal segment is still largely untapped presenting about half of the total market potential,” Mr Sunday said.

“The local beer market is healthily competitive, with good prospects for growth. Our per capita consumption is still lower than the region and much lower compared to the South African market.’’

CORE BUSINESS

EABL runs Uganda Breweries, Serengeti Breweries, United Distiller Ventnor, and East African Malting Limited as regional subsidiaries.

The new Keroche plant can produce 30 different brands of beer and hold up to a million hectolitre of liquor, guaranteeing consistency in supply.

Crown Beverage Kenya managing director Gareth Jones said there is a great potential for the firm to capture a good share of the market. He said the Kenyan market promises better opportunities than that of South Africa where the beer maker controls over 90 per cent.

“Beer in Kenya is more expensive compared (with) my home country. In fact, the price is slightly more than double South Africa’s where a 750ml bottle of beer goes for about Sh90. In Kenya, you pay about Sh130 for 500ml. SABMiller is coming into the Kenyan market as the challenger,” Mr Jones told Business Daily.

Driven by strong population growth, a growing middle class, and a dynamic private sector, the beer industry in Kenya has taken off impressively.

Kenya was ranked Africa’s third largest alcohol consumer after Nigeria and South Africa by Deutsch Bank market research in 2013.

The survey, which is based on international beer maker Diageo’s sales on the continent, put Kenya’s alcohol market share at 17 per cent of Africa’s total behind Nigeria (36 per cent) and South Africa (18 per cent).

The entry of new firms  comes as EABL disposes  off its glass-making arm, Central Glass Industries (CGIL) located in Kasarani, Nairobi. The brewer said the move was made to enable it to focus on beer business.

“This is part of the EABL strategy to divest from non-core and focus more on core business. EABL will remain a primary customer for CGIL as their products will serve a larger market beyond EABL,”  the firm said.

 “EABL will be able to tap into the benefits of increased efficiencies at the glass plant and any future plans to expand glass manufacturing capacity.”