Broken promises force brewing giants to renew rivalry in East Africa market

Competition for control of the lucrative Tanzanian and Kenyan beer markets looks set to break out once again as the world’s largest brewers, SABMiller and Diageo sharpen strategies to stamp presence in the region.

This follows the apparent collapse of a previous marriage between the two giants in serving these markets.

On Wednesday, Britain-based SABMiller said it was considering rethinking its investment strategy in both markets once an arbitration case pitting it against Diageo is concluded early next year.

A joint venture between the two brewers meant to help stop the huge revenue losses they had suffered in a battle for control of Kenya and Tanzania beer markets ended on the rocks mid this year, driving the partners to an equally expensive legal battle.

“The conclusion of the arbitration holds the key to our next investment approach in the Kenyan and Tanzanian markets,” said Nigel Fairbrass, the head of media relations at SABMiller in the UK told the Business Daily.

“Kenya is specifically an exciting beer market that one has to think of in future,” said Mr Fairbrass, a signal that SABMiller could go big in its investment in Kenya.

Marriage of convenience

SABMiller said it will invest at least Sh15 billion in Africa, excluding South Africa, next year after spending double that amount this year.

Unconfirmed reports indicate that SABMiller is returning to Kenya’s beer industry by setting up base in a move that is expected to trigger the second phase of the 1990s beer wars with East African Breweries Ltd.

Analysts said SABMiller trend in entering new markets has been mainly through buying into existing brewers or setting up new plants, unlike the marriage of convenience it entered into in 2002 with EABL.

“We hope to expand our operations in Africa where our strategy has been broadening our brand portfolio with premium and affordable offerings,” said Mr Fairbrass.

SABMiller says it will invest Sh1.2 billion in a malting plant in Uganda next year to process locally grown barley, underscoring its confidence in growth in the local market.

According to SABMiller’s 2009 annual report, Tanzania achieved lager volume growth of four per cent last year despite inconsistent energy supply and infrastructure challenges which continue to constrain growth.

“In Africa, traditional beer continued to grow strongly, reflecting an intensified focus across the continent with product launches in more markets and innovative supply chain initiatives.”

Following a Sh3 billion investment in a brewery in Juba, Sudan, which began operations in April this year, SABMiller has also lined up new plants in Angola, Mozambique and Tanzania to increase its African presence.

The outcome of the arbitration at the International Chamber of Commerce, analysts said, will inform the texture of future cross-border business deals in East Africa.

Diageo-owned EABL has made known its intentions in the fight for the Tanzanian market.

Three weeks ago, it courted Serengeti Breweries Limited (SBL) as their sole distributors of all its world-class spirit brands in that country.

EABL announced its plans to acquire a stake in Serengeti Breweries after terminating a contract with Tanzania Breweries Limited (TBL).

The August 18, 2009 ruling by the England and Wales High Court that the status quo remain for the time being has left EABL and TBL cohabiting in an uneasy marriage.

“It’s business as usual, they are supplying our products in Tanzania and we also are locally,” said Ken Kariuki, the corporate affairs director at EABL. “It might be delayed but eventually we will part ways.”

The beer wars come at a time when Kenya’s second largest brewer, Keroche, has just launched its second brand — Summit Malt.

Shift fortunes

Keroche managing director, Tabitha Karanja, said the entry of SABMiller could shift the fortunes in the market, pointing at possible price and quality wars.

“Kenya is ripe for more players but the battle is poised to be tough to even get the smallest slice of the market,” said Ms Karanja.

Players in the Kenyan market will also have to contend with Sierra brand brewed by another local brewery, imports such as the Heineken brand, and even spirits from firms such as Government-owned Kenya Wines Agencies Ltd.

Failure of arbitration to resolve the matter means EABL will have to wait until January 17, 2011 to terminate the contract and possibly consummate its proposed marriage to Serengeti Breweries, TBL’s main rival in Tanzania.

That will in turn delay EABL’s plans to increase market share in the country at a time when growth has flattened out in the Kenyan market.

Bruising battle

EABL’s marriage to TBL was formalised in the 2002 agreement that saw SABMiller cede a 20 per cent stake in TBL to the Kenyan brewer in exchange of a similar stake in Kenya Breweries.

That deal saw SABMiller exit Kenya where it had put up a bruising market share battle against EABL.

The agreement specifically provided that TBL would grow EABL’s flagship Tusker brand in Tanzania among other brands as EABL did the same for SABMiller’s Castle in Kenya.