Mark Ocitti Ongom, the new managing director of Kenya Breweries Limited (KBL), the Kenyan subsidiary of the East African Breweries Limited (EABL), has come to Nairobi with big plans.
The plan includes initiating more Kenyans into premium drinks while hoping that the tax pause on alcohol witnessed in the Finance Bill 2023 will bear fruits.
This is as KBL, EABL’s biggest subsidiary, grapples with inflationary pressures that have devastated consumers’ purchasing power.
EABL, which is one of the oldest firms in Kenya, is listed on the Nairobi Securities Exchange (NSE). It has a presence in Kenya, Uganda and Tanzania.
But it is the Kenyan unit that drives the bulk of its sales, shining a spotlight on the man that heads KBL.
With his appointment, it means Mr Ocitti has headed all of EABL’s subsidiaries, an experience that gives him a rare opportunity to understand the three markets.
He joined EABL in August 2014, having worked for Shell in Uganda and Airtel Networks International in Kenya, Uganda and Zambia. He spoke to the Business Daily.
You have been to all three markets where EABL has a presence. What is your first impression of Kenya compared to Uganda and Tanzania?
In terms of the contribution of business, Kenya is the biggest. Between 65 and 70 percent contribution of EABL is Kenya, followed by the Ugandan business and then Tanzania.
Obviously, Kenya is the biggest economy in East Africa and so it follows that it is the biggest market in the region followed by Tanzania.
All three markets have their various complexities and various things that you need to manage and look into.
When you look across East Africa, the consumer base is pretty much the same in terms of aspirations and wishes and desires.
So, it doesn’t matter which markets you are working in; you are really dealing with a consumer who is very similar in terms of the things they want and the things they aspire to.
If the consumers are the same across the same markets, are policy and macroeconomic environments also the same?
That is what makes the difference. When you talk about the macro-environment you talk about the political, economic and social environments.
But you also talk about the pressures on the consumers in terms of how much money they have in their pockets. How much they can spend.
So, from a macro-environment, there are no big differences. All the markets are suffering the same level of inflation.
When it is raining in Tanzania, it is raining in Kenya and Uganda, so pretty much the same weather patterns.
But when you come to the political perspective that is where you find fundamental differences. Policies that govern our industry in each of the markets are quite different.
How different are the policies in the three countries?
If you just pick taxation policy or excise policy, for instance, they are very different. In some markets, they use ad valorem (a tax based on the assessed value of an item) in tax policies.
In other markets what they use is completely different.
Has the fact that the tax regimes in Uganda and Tanzania are a little friendlier on alcoholic beverages resulted in different consumption patterns in the three markets?
The taxation on our products is higher in Kenya than in Uganda and Tanzania. For a price of beer in Kenya, you pay a lot more in terms of taxes than in Tanzania and Uganda.
In Tanzania, for example, over the last five years, there has not been a tax increase for beer. There have been a few tax increases for spirits, but none for beer.
In Uganda, the excise duty is revised once a year in July and so pretty predictable in terms of the level of taxation that you expect.
Here (in Kenya) until the Finance Bill that was released two weeks ago, we have pretty much had an excise increase every quarter. And so it makes it more difficult for the Kenyan consumer than Ugandan and Tanzanian consumers.
As a result, you find that the industry here is under a lot of pressure. When excise increases it is passed on to the consumer and therefore the consumer’s capacity to spend is decreased.
Has the increased taxation led to a reduction in consumption and, if not, does that speak of a high disposable income?
Over the fiscal year 2022/23, we have seen our industry shrink by almost 10 percent as a result of the tax pressure that has been put on to the consumer.
So, you can imagine the relief that we have in the new Finance Bill, 2023 seeing that there is not going to be an excise increase on our products.
Also, as the consumption is squeezed our contribution to the exchequer is also reduced.
I think as a result of the decision that they have made (of not introducing taxes), and hopefully, it passes, Treasury will start seeing a lot more coming from us as consumption hopefully goes up again.
While there are no new taxes on alcoholic beverages, the purchasing power of consumers has been squeezed. Wouldn’t this affect consumption of alcoholic beverages?
When disposable incomes go down, it affects our industry. It might not be direct from the tax on our products, but the cost of living.
One thing about Kenya is that it is resilient. We have seen all these cycles before. It is not the first time we are seeing this kind of economic stress in this country. But many times you see the economy bounce back.
That is why we see that our role is to continue to be relevant to the consumer so that when that time comes, they recognize and appreciate that we were there with them even during the hard times.
We saw an economic squeeze during Covid. It came back. We have seen inflation similar to this in the past.
What are some of the immediate changes we should expect from you?
There are three particular things that I would like to drive for my legacy here.
The first one is ‘premiumisation.’ The Kenyan economy and the Kenyan consumer, just like consumers across the rest of East Africa, are forward-looking and sophisticated.
And they have been exposed to sophisticated goods and services and therefore they aspire to consume sophisticated goods and products that they consider premium.
We will introduce premium products to the Kenyan consumer, teach them how to consume them and hopefully bring them at affordable prices that they can afford in such a way as to create an environment where the consumers feel fulfilled.
The second one is about driving stakeholder relationships and reputation, both internally and externally.
The third is the development of our people. We have a huge workforce. It is an effective and quality workforce.
I would like to grow within that workforce, leaders at every level so that everybody within the organization is able to meet their career aspirations.