Brewer sees opportunity and some risk in new beer regulations

President Kibaki’s assent to the alcoholic drinks regulations is promising a near overhaul of Kenya’s liquor market and changes the fortunes of hundreds of players in the manufacturing and marketing chain.

Key provisions of the new law include the reversing of the 30-year ban on brewing and consumption of traditional liquor and the ban of vending of alcohol within a radius of 300 metres from learning institutions—threatening the closure of thousands of bars countrywide.

It presents the biggest threat on the market share of mainstream brewers such as East Africa Breweries Limited (EABL), Kenya Wines Agencies Limited (Kwal) and Keroche Industries in its current form.

EABL’s corporate affairs director Ken Kariuki shared his thoughts with the Business Daily on the controversial law, its impact on EABL products and what the listed brewer is doing to tackle the challenges. Excerpts:

BD: What’s EABL’s take on the new alcoholic drinks regulations?

KK: The Act will allow government to have greater control of alcohol standards in the country. EABL and indeed NABAK without reservation, condemns the production and sales of illicit brews by any other name an in principle supports the government efforts in tailoring an Act that supports the production and sale of clean safe alcohol for Kenyans. We therefore endorse it.

We have however mentioned that there are certain clauses that we are unhappy about and we have already sought intervention of the law maker and the relevant ministry. We believe that Government does not seek to curtail business environment and thus are hopeful for positive outcome on the issues.

BD: Do you expect the new order to affect your company’s fortunes in any way?

KK: As a business we expect outcomes to be decided by the consumer, who is our customer. The choice of what the consumers will take is entirely their call. We therefore remain steadfast in ensuring that we continuously meet their needs.

As far as what the new order may bring, we can only hope for uniformity and predictability in business environment and compliance with the rules.

BD: EABL had earlier indicated that it was not comfortable with five provisions of the new law. What are these provisions?

KK: First, the is the provision requiring makers of liquor to place warning labels on 30 per cent of product packaging.

This provision amounts to a dilution of brand identity and poses the danger of self-discrediting some of the strongest brands in the region that are great income earners for both wananchi and the government.

We believe that there are safe levels of alcohol consumption and hence no need to move in the direction of the tobacco industry regulation.

Entry of under 18 to outlet: No person holding a license to manufacture, store or consume alcoholic drinks under this Act shall allow a person under the age of eighteen years to enter or gain access to the area in which the alcoholic drink is manufactured, stored or consumed unless accompanied by an adult.

This clause is punitive as there are several outlets and restaurants that sell alcohol yet are not your typical bars. This will not auger well because it basically bans under 18s from entering any restaurant.

However, because we do see the good intentions, we have requested that the clause be retained with the rider of “unless in the company of an adult.”

That allows families some room to take their children to places that may serve meals with alcohol.

BD: How do brewers plan to handle the law that limits the sale of liquor within a radius of 300 meters from learning institutions given that the bulk of the bars are in breach of this requirement?

KK: This is yet another contentious issue. However again the lawmakers have been spoken to and they do indeed see the sense in addressing this issue. We remain hopeful that a reasonable radius will be incorporated.

BD: Have you weighed the possibility of the consumer market tilting in favour of the low cost traditional brews especially at the bottom end of the market where you are present with Cane spirit and Senator Keg?

KK: We have weighed out all options, and feel that consumers still discern a good and quality beverage such as the ones we produce. We cannot dare speak on behalf of consumers but we can say that we are confident in our ability to deliver high quality products to our consumers at all times.

BD: Senator Keg has emerged as a volumes driver in recent years with its selling point being its low pricing, partly arising from the cost savings made from selling the beer in cups and not in glass containers or cans. But the new law says all alcoholic products must be sold in containers of not less than 250 millilitres. Does this provision have any implications on how Senator might be sold in the future?

KK: We have sought this clarity and have been made aware that this clause is specific only to Chang’aa type of drinks and is therefore not applicable to Senator Keg.

BD: What are the likely implications of this new law on the pricing of liquor in Kenya?

KK: We do not expect any pricing changes in the top or middle market segments. There are however possibilities of some shifts at the very low end or the market where Chang’aa has been at play.

BD: The reversal of the 30 year ban on brewing and consumption of traditional liquor opens a massive opportunity for brewers and distillers. Is EABL planning to roll out products for this new market?

KK: EABL’s entry into any market is guided by the presence of business opportunities as confirmed by empirical research. We will, therefore, await the results of the study that was commissioned before the Bill became law. It is on the basis of that study that we will decide on the way forward.

BD: What other opportunities does EABL see from the new regulations?

KK: At the moment we are very busy trying to see how best to deal with the contentious issues. We remain confident that the law will help streamline the market place as far as making alcohol, paying taxes and compliance with the provisions of the law are concerned. To that end we remain confident that it is indeed a good law.

BD: It has been indicated that Naivasha MP John Mututho promised liquor industry players he would push for amendments such as the provision of 300 metres radius from schools. What happens if the review does not take place?

KK: We are unaware of any intention to make life difficult for legitimate businesses. The industry has been in touch with the relevant people in government who have re-affirmed their position as not wanting to stifle business. We therefore remain confident that the few outstanding issues will be addressed amicably and within acceptable timelines.