Kenya is Africa’s third largest alcohol consumer after Nigeria and South Africa, an analysis by Deutsch Bank Market Research has showed.
The research, which is based on international beer maker Diageo’s sales on the continent, put Kenya’s alcohol market share at 17 per cent of the continent’s total behind Nigeria with 36 per cent and South Africa with 18 per cent.
Deutsch Bank says the other African countries have small fragmented markets, each no bigger than six per cent of the total.
“Beyond these two (South Africa and Nigeria) countries the continent’s alcohol market fragments quite quickly with only Angola, Kenya, Cameroon and Congo (DRC) accounting for more than five per cent of the total addressable market,” said Deutsch Bank in its report.
The populations of Nigeria, South Africa and Kenya at 160 million, 50 million and 40 million, respectively, have expanding middle classes which are seen as a key attraction to consumer goods companies such as alcohol makers.
While announcing East Africa Breweries Limited (EABL)’s annual results for last year, former chief executive Seni Adetu said the beer maker was banking on the rising middle class population to grow profits.
“We are positioned to continue delivering superior shareholder value by leveraging on increasing population, growing middle class and affluence,” said Mr Adetu, adding that the population of eastern Africa is expected to rise by six million this year.
Analysts say operating margins for Diageo in Kenya can be as high as 30 per cent given its “quite premium pricing and the company’s scale in both beer and spirits.”
Diageo controls about 90 per cent share of the formal Kenyan beer market through its listed subsidiary EABL and over 50 per cent of the local spirits market through brands such as Kenya Cane, on top of its premium import business.
The Deutsch Bank report said the importance of the beer business is reflected in tax revenues.
“Its tax contribution accounts for just under five per cent of Kenyan government revenues and underlines the scale and importance of this business,” it said.
The Kenya Revenue Authority estimates that excise duty on beer contributes to more than half of the total excise duty collection.
Africa is seen as one of the high growth potential markets for alcohol consumption due to the sustained expansion of the continent’s economies—which is putting more people into the middle-class group.
The growing economies and young population are seen as major boosters to future demand.
“This [fast growth] means that there is a rapidly growing middle-class that consumer goods companies can target with around 60 million consumers having an income of over $3,000 (Sh252,000) a year and are expected to grow to 100 million by 2015,” the report said, citing the Standard Bank research.
Using data from the International Monetary Fund (IMF), it noted that six of the world’s fastest growing economies between 2001 and 2010 were in Africa including Angola, Nigeria, Ethiopia, Chad, Mozambique and Rwanda.
In the next five years, IMF projects that seven of the top 10 growth countries will be in Africa, one more than was the case in the last 10 years.
The new African countries entering the list are Tanzania, Zambia, Ghana and DRC— which are rich in mineral resources — while those exiting the list are Chad and Rwanda.
The report said the African continent is “the next China”, being “probably the only market or region that could have as big an impact on the industry [consumer sector] as China has in more recent years.”
There is also an opportunity to graduate many drinkers of informal beers into the branded and international beers with growth in incomes and wealth.
“As wealth increases, legal beer consumption generally increases and in Africa there is a huge opportunity to trade consumers up from the informal segment or home brew into the branded sector and then to international premium beers,” said the report.
To show the African market potential, the report uses Diageo’s experience in Nigeria. “Diageo’s largest emerging market and with an operating margin over 30 per cent, provides a template for what is possible in this high-potential continent,” it said.
It notes that Diageo has a close to 30 per cent volume share of the Nigerian beer market and nearer to 40 per cent value share — which it has taken steadily over recent years.