How new laws have changed beer market

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

Mr Kibaki signed the regulations into law on Wednesday, reversing a 30-year ban on brewing and consumption of traditional liquor, setting in motion what could loosen the mainstream brewers and distillers’ grip on the market and set new rules on how Kenyans will consume alcohol.

Key provisions of the new law include the ban on the vending of liquor within a radius of 300 metres from learning institutions — a move that signals the imminent closure of thousands of bars, and wines and spirits shops countrywide.

Retail outlets such as supermarkets will have to carve out special rooms — that are not accessible to persons under the age of 18 years — within their shopping floors, a condition most retailers say would be too costly, making it more rational to eliminate alcohol from their shop shelves altogether.

Parliament passed the new laws early this year aiming to regulate consumption of illicit brews that have claimed hundreds of lives and maimed thousands others as well as to protect minors from alcohol addiction.

Brewers and financial analysts said the regulations have the potential of upsetting established players such as East African Breweries Limited (EABL), Kenya Wines Agencies Limited (Kwal) and Keroche Industries.

EABL’s corporate affairs director Ken Kariuki described the regulations as posing a big threat to the company’s business in their current form.

“The spirit of the law was to discourage underage drinking not punish businesses that have existed years before the schools,” said Mr Kariuki.

He, however, said the mover of the Alcoholic Drinks Control Bill 2009 Naivasha MP John Mututho had agreed to push for amendment of the limitation on pubs in residential areas.

A lifting of the ban on traditional liquor is promising the mainstream players a tough battle for control of the bottom end of the market — that has in the past five years emerged as the new frontier for growth.

Census results published on Tuesday confirmed this trend in its finding that Kenya’s population is rapidly urbanizing¬ – driven by the migration of persons aged between 15 and 34 years — forcing firms to sell small-sized low-priced goods to move volumes.

EABL’s results show that the bottom end of the market where the brewing giant sells its Senator Keg brand and a range of low-priced spirits recorded the fastest volumes growth over the past five years. Senator keg grew volumes by 14 per cent in the year to June.

The brewer serves this market with the Cane spirits brand, which accounts for about 70 per cent of its spirits volumes and the Senator Keg, which delivers large volumes but lower value compared to flagships Tusker, White Cap and Pilsner brands.

The coming into force of the Alcoholic Drinks Control Act 2009 in 90 days is expected to spur a proliferation of thousands of small brewers targeting the bottom end of the market.

But Mr Kariuki said EABL was confident in the fact that new laws bear little chance of negatively impacting on its flagship brands.

“Our flagship brands are unlikely to be impacted by the traditional brews since the interaction will happen at the very low end of the business,” he said.

Still, EABL will have to find a way of repackaging the Senator Keg to comply with the provision in the new law that requires all alcoholic drinks to be sold in containers of not less than 200 millilitres.

EABL sells Senator Keg in cups from barrels making huge savings on glass or can packaging — a move that has partly enabled the brewer to sell a half-litre cup of the brand at Sh25.

Analysts said that the biggest threat to the mainstream brewers and distillers, however, remains in the rule that limits bars from operating near schools.

“This rule bears the risk of shutting down thousands of bars if implemented to the letter with huge implications on the distribution chains of established players and their brands,” said Erick Kimathi, an analyst at African Alliance. “The bars in the estates form the largest distribution outlets and cutting them off will have a devastating impact on sales volumes,” he said.

The largest portion of bars and wines and spirits shops is located within residential areas and shopping malls that are located near schools.

This means that consumers will have to shop for new drinking outlets away from their homes, a move that will initially slow down consumption of liquor and render thousands jobless as bar owners close shop.

In Nairobi, for instance, bars in part on the Central Business Districts close to Moi Avenue Primary School will have to close.

Hundreds of bars that dot Buru Buru shopping centre, Nairobi West and Zimmerman estates will also have to close shop.

Retail chains that form part of the brewers’ distribution chains are also mulling dropping alcohol products from their shop shelves, arguing that the regulations will up the cost of business.

The law requires retail store to have special rooms away from the shopping floors for alcoholic products, but retailers reckon that the move will eat into the shopping space — which has become expensive and critical as retailers boost their product range.

In an underperforming economy that has eroded a large fraction of beer consumers’ disposable incomes, a large number of alcohol consumers in the bottom incomes bracket have retreated to the comfort of illicit and sometimes lethal brews whose sale points are mostly found in urban slums, low income neighbourhoods and rural villages.

As a result, the illicit brews have since 2008 munched a huge market share previously held by the mainstream industrialists, forcing them to contend with falling volumes and profits.

Illicit brews are estimated to control at least 70 per cent of Kenya’s spirits market, despite their blatant contravention of the set requirements for manufacturing as well as trade in alcoholic beverages — tax obligations, quality certification, wholesomeness and packaging.

More recently, the government has been pushed into disaster management as a significant proportion of low income earners turned to cheap illicit drinks — sometimes laced with deadly additives that have caused deaths or blindness.

Last April, about 18 people died in Nairobi’s Shauri Moyo Estate after consuming an illicit brew.

Kenya’s liquor market is estimated to be worth Sh42 billion with the formal mainstream segment accounting for only 60 per cent of it, according to the National Agency for the Campaign Against Drug Abuse (Nacada).

This means that the untaxed illicit brew market is worth Sh16 billion, which could now come under the radar of the taxman.

“There has been a serious gap where too much substandard alcohol has found its way into the market” said Jennifer Kimani, the coordinator of Nacada.

“The new law, as it is, has the potential of eliminating killer brews but its success will depend on how effectively it can be enforced, “ said Ms Kimani, adding that it will bring about professional distillers of traditional brews and bring the multi-billion shilling industry under the tax net.