Beer sales steady despite tough alcohol law

Just 15 months ago, analysts were painting a bleak forecast of the beer market in light of the new regulations that limited beer consumption. Now, it appears the law has had little impact on East African Breweries Limited (EABL).How did this happen?

We have said that we support regulation of the industry to the extent that it allows legitimate business to thrive and does not border on over-regulation.

We are all concerned about the proliferation of illicit alcohol consumption and cannot afford a worsening of the situation.

Regarding the impact of the regulation on our business, it is fair to say that the fundamentals of this business are very strong.

Our brands, our people, our distribution infrastructure and our healthy balance sheet position us strongly.

All these coupled with business agility and flexibility has helped to cushion the impact on our performance such that we continue to deliver value to our shareholders.

The demand for our brands continues to be driven by our various strategies including innovation and renovation.

EABL has a strong portfolio of much-loved brands that cover all price points.

Challenged by the new rules, our business remains focused on our drive for strategic and operational excellence.

The competition landscape in Kenya is changing with the re-entry of SAB Miller and increased interest by Heineken. How is EABL coping and how will it define its growth?

As we have always maintained, we welcome competition in the Kenyan market, as long as it is within a fair environment, and all play by the rules.

We strongly believe that there’s enough growth potential for every player in this market if we are all focused on growing the pie.

How do you think the beer market will look like in 10-15 years?

One of the strongest social-economic indicators is obviously the emerging middle class coupled with a real shift in consumer trends and dynamics.

This scenario pressures industry players, not only in the beer market but in the goods and services sector, to become highly responsive in their market strategies.

Innovation based on deep consumer insights and executional speed will, therefore, play a central role in how businesses operate in the next decade. Also, companies will need to be more efficient cost-wise to offer affordable beverages.

You must also appreciate that increased regulation could have both direct and compounded effects, which could lead to up trading and conversion of the growing informal market to the formal beer segment.

Regionally, there’s still a huge potential in the emerging markets.

What impact has the unwinding of EABL pact with SAB Miller had in the market to date including the fact that it opened its key market in Kenya to its former partner?

Business without competition would be quite lifeless, in my view. We welcome competition as long as it is within a balanced and fair environment.

We also recognise that the market is dominated by illicit alcohol. There is a significant opportunity for legitimate and responsible companies.

EABL has alluded to the fact that much of the growth will come from outside Kenya in coming years. Why do you think it’s important for the company to expand regionally and what new markets are you looking at?

East Africa is an exciting region and a great place to do business. We are always looking for opportunities for sustainable growth by continuing to invest and build our great brands, or through innovative and value-enhancing deals or joint ventures.

Infrastructural challenges abound, the emerging markets of Rwanda, Burundi, South Sudan and DRC still hold immense potential for growth. However, we are not suggesting that Kenya will stall.

Diageo, your parent company, is expanding in the region, especially with its recent direct buyout in Ethiopia. Isn’t this competitive to EABL’s geographic expansion plans?

The Ethiopian government was keen to build closer ties with Europe and its corporations, so directly approached Diageo to bid for the Meta Brewery due to the fact that Diageo already operated in Ethiopia with a thriving spirits business.

Being a majority shareholder of EABL, I wouldn’t consider this as competition in actual sense.

EABL had preferred to push its mass market like Tusker and Pilsner. In recent months, you have been placing lots of prominence on your premium brands, isn’t it?

We have an extensive and rich portfolio of beer and spirits brands which offer consumers great experiences across different price points.

Our focus is across the whole range: from Senator Keg which offers a great beer at an affordable price and which grew at over 30 per cent volume in the first half of our financial year, to Johnnie Walker Blue Label which is sought after among the business elite globally.

EABL has emerged as one of the most sought after counters at the NSE, mainly due to its high dividend pay-outs. Is EABL able to maintain this trend given the expected high financing costs and new investments?

The decision on dividends is made by the EABL board after our financial year ends on June 30.

EABL has a strong operating cash flow and at our first half results presentation in February, we announced that we had maintained our first half dividend at the same level as in the previous year.