Premium beer brands to cushion EABL’s revenues

East African Breweries Limited’s newly-introduced premium beer brands could cushion the firm from a fall in sales volumes resulting from future price increases, analysts at Old Mutual Securities have said.

A tough operating environment and constant tax increases have seen the brewer increase its retail prices in successive years, putting pressure on the sales volumes and profit margins of its traditional mainstream products.

Old Mutual Securities said that the introduction of premium brands will help EABL to attract middle-income and high-end consumers who are more likely to keep buying the same volume of beer even in tough economic times.

“This will allow EABL some pricing leeway especially when input costs rise or the government imposes higher excise taxes,” said the Old Mutual report.

The rate of inflation that is now at 18.93 per cent means consumers have less spending power, affecting discretionary spending such as alcohol.

This is a threat to brewers who only have brands targeting the low-end market since it means consumers will drink less.

EABL’s premium beer brands include Tusker Lite, Windhoek, Pilsner Ice and White Cup Lite while Tusker, Guinness and Pilsner are viewed as the mainstream beers.

Other competing premium brands in the market include Miller Genuine Draft brands by rival SAB Miller, Heineken distributed by Maxim, the Sierra suite of beers by Ozbecco and Corona distributed by Viva Productline.

There is no clear definition on what makes a beer a premium brand.

However they are considered as those brewed using malted grains, hops, yeast and water.

Other definitions are qualitative such as a beer that represents a certain quality of lifestyle but the common thread is that consumers of premium beers have above-average income and are well travelled therefore do not mind paying extra for their choice of drink.

“Corona is the most expensive beer in Kenya. Our customers are loyal and they know the finest ingredients have been used to make it. They have come across Corona in the US, UK, Dubai and they love it, they are happy to see it in Kenya,” said Viva Productline chief executive Rupen Samani.

A corona beer typically costs at least Sh250 and is not found in average pubs.

Analysts said that sales from such beers will be a key revenue generator for EABL over the next decade because the middle class will have expanded and beer consumption will have increased.

“The premium market may not yield much now but in the next five years it may contribute between five to 10 per cent of the top line,” said George Bodo, a research analyst at Apex Africa.