East Africa’s beer market is set for interesting times with reports that Anheuser-Busch InBev NV (AB-InBev) — the world’s largest brewer — is planning to build a $100 million brewery in Dodoma, Tanzania.
AB-InBev’s entry into the region comes at a time key players — Diageo, Heineken and Castel Group — are either struggling to protect their market share or increase their presence.
Indeed, as global beer consumption declines in other regions, in Africa consumption has been steady, averaging four per cent between 2012 and 2014, and is projected to average five per cent for the period from 2015 to 2020, according to market research firm Canadean.
Bloomberg this week reported that AB-InBev has set in motion plans for a new plant after a meeting between President John Magufuli and Ricardo Tadeu, its Africa boss.
The decision by the company, which entered Africa in 2016 after the acquisition of SABMiller at a cost of $100 billion, to invest in a plant that will anchor its expansion in the region did not come as a surprise. The company has been recording double-digit growth in volumes.
“Our beer volumes grew double digit in the majority of the countries in which we operate in Africa — Nigeria, Tanzania, Uganda and Zambia — as we continue to expand our offerings to consumers through affordability and premiumisation strategies,” said the company in its 2017 financial report.
Shift from premium beer
In East Africa, AB-InBev has a strong presence, controlling over 75 per cent of the Tanzania market through Tanzania Breweries Ltd, while in Uganda it is seeking to increase its market share through its local subsidiary Nile Brewery, which controls about 60 per cent of the market.
In Kenya, Diageo through East Africa Breweries Ltd (EABL) in which it has a 50.02 per cent stake, continues to dominate the market. The Kenyan market accounts for 74 per cent of the EABL business, while in Uganda it accounts for 17 per cent market share and and 9 per cent in Tanzania.
The plan by AB-InBev to invest in a brewery could be a game-changer in the regional market, where focus is shifting away from premium beer market that has largely maintained flat growth to low-end beer brands and spirits.
AB-InBev says its growth is rooted in the low-end segment of the market that is currently largely served by traditional brews and informal beer traders who have led to the explosion of illicit alcohol.
In Kenya, it is estimated that 58 per cent of all pure alcohol consumed is in the informal market while in Tanzania it is estimated at 65 per cent and Uganda 70 per cent.
The company plans to use local ingredients like sorghum, barley, maize and cassava to make low-end beer that will enable it capture a bigger market.
“We need to develop our mainstream beer, make it affordable enough to tap into the informal beer market, not only informal beer but informal alcohol in general that you have in those markets,” said Mr Tadeu.
He added that in many African countries people drink between nine and 11 litres of commercially produced beer per capita annually, against a global average per capita rate of 44 litres per year. South Africa leads in beer consumption in Africa, with a per capita consumption of 80 litres.
The fact that growth is in the low-end of the market is evident considering that EABL is investing $150 million in a new plant in Kisumu to manufacture Senator Keg using sorghum sourced from the local community.
The plant, which is scheduled for completion next year, will ensure the company maintains the growth of the low-end beer market has significantly maintained growth at a time when mainstream beers are on flat trajectory.
According to EABL half year results for the period ending December 2017, the company saw it premium beer volumes decline by 13 per cent, mainstream by seven per cent while emerging segment grew by 10 per cent.