A customer buys wines from a supermarket in Nairobi. The Kenya Wine Agencies has threatened to press contempt of court charges against a partner firm in a dispute over a distribution contract. Photo/FILE
What you need to know:
The State-owned alcoholic drinks maker moved to court in August to stop the partner from terminating a 14-year exclusive distribution contract. The matter is due for hearing on October 2.
Distell is the owner of flagship Viceroy and Amarula brands, which are exclusively distributed by Kwal. Distell has been pushing for a stake in the Kenyan company.
The South African firm has rebranded Viceroy and begun its own distribution, prompting Kwal to cry foul.
Kwal is the sole marketer of up to 80 of Distell’s brands in Kenya, accounting for 60 per cent of its profits. Analysts say that the exit of the South African firm would render Kwal a near shell, making it almost impossible to find a buyer.
Kenya Wine Agencies Ltd (Kwal) has threatened to press contempt charges against its business partner, South Africa’s Distell, which has launched its own distribution despite an ongoing court battle.
The State-owned alcoholic drinks maker moved to court in August to stop the partner from terminating a 14-year exclusive distribution contract. The matter is due for hearing on October 2.
Distell is the owner of flagship Viceroy and Amarula brands, which are exclusively distributed by Kwal. Distell has been pushing for a stake in the Kenyan company.
The South African firm has rebranded Viceroy and begun its own distribution, prompting Kwal to cry foul.
“This is an outright contempt of court, we now intend to move to court to have Distell halt production of Viceroy,” said an executive of Kwal who sought anonymity given the sensitivity of the matter.
“I can assure you that we will move to court before October 2, we are now seeking direction from our lawyers. The new packaging in distinct bottles and labelling indicates that Distell is either importing or manufacturing Viceroy, which is against court orders which granted a stay on the status quo.
Kwal is the sole marketer of up to 80 of Distell’s brands in Kenya, accounting for 60 per cent of its profits. Analysts say that the exit of the South African firm would render Kwal a near shell, making it almost impossible to find a buyer.
Under the partnership agreement with Distell, each partner is bound to give a three-month termination notice. This is what the South African firm did in May, signalling its intention to sever links with the Kenyan firm in August.
Distell wants to sever links with the Kenyan firm on grounds that continued delay of a privatisation process is frustrating its strategic plans.
The government, with a 73.57 per cent stake in Kwal, had promised the South African firm ownership in the firm but this has been delayed.
The Treasury has maintained that the absence of a board at the Privatisation Commission has made it impossible to start the process of selling part of the government’s stake in the alcoholic drinks firm, pleading with the South Africans for patience.
Kwal obtained an injunction restraining Distell from terminating the contract until the dispute between them is heard and determined by a court.
Papers presented in court show that the Kenyan government has promised Distell a 26 per cent stake in Kwal in exchange for continuation of the right to distribution.
The planned end of the business partnership is set to intensify the battle between SABMiller and East Africa Breweries Limited (EABL).
Diageo-led EABL and SABMiller, through its local subsidiary Crown Beverages, have been locked in a battle for control of the regional beer market.
Standard Investment Bank analysts said that the battle will shift to the spirits market as Distell, which is partly owned by SABMiller, severs links with Kwal to set up its own operations.
“Tying in the association between Distell & SABMiller and the move by Distell to set up its own operation to manage distribution and marketing appears like the start of a grand assault on EABL,’’ said Standard Investment Bank in an earlier investment brief to its clients.
“SABMiller owns 29 per cent of Distell, which could be used as an additional distribution route into the Kenyan market,” added the investment bank.
SABMiller has been distributing its brands like Redds, Genuine Draft, and Castle Lager through Crown Beverages, which it bought late last year after taking control of family-owned Crown Foods, the bottlers of Keringet drinking water.
This comes after EABL ended a partnership with SABMiller that saw the Kenyan unit supply SABMiller products while the South African’s Tanzanian unit fed the market with EABL products, setting off a vicious market share war between the business partners for control of Kenya, Uganda, Tanzania, and South Sudan markets.
But the good returns in the spirits business is egging increased interest from SAB Miller, says Standard Investment Bank, adding that this could be behind Distell’s plan to terminate its partnership with Kwal.
