East Africa: Beer maker plans to halve prices

FMCG SUPPLIER NEWS

Nation.co.ke - Dec 10th 2012, 11:03

A brewer plans to cut by half the price of its products in the increasingly tough industry characterised by beer wars.
 

SABMiller, whose products are distributed locally by Crown Beverages, said the plan is intended to help it further penetrate the African market.

A report by Merrill Lynch Research says that SABMiller’s management is keen to halve beer prices through a four-step process.

The move entails lowering costs by up to 10 per cent first, then reducing packaging expenses by 10 per cent through the use of transactional packaging rather than bottles. Third, the firm will cut raw material costs by 10 per cent through producing grains, such as barley locally and finally increase market penetration with opaque beers.

The company also seeks to tackle capacity constraints by investing between Sh25.5 billion and Sh42.5 billion ($300 million — $500 million) annually to drive capacity increases in Africa.

It also looks to build greenfield breweries closer to the market, giving consumers the additional local feel and easing distribution bottlenecks. Three to four new breweries are currently in the pipeline.

Some of the new breweries are scheduled for opening in Zambia this month and Uganda (April 2013). This move is motivated by the significant growth potential resulting from hooking consumers into the formal alcohol segment in Africa, given the increasing profitability.

Tanzania and Angola are currently leading the profitability pyramid for the beer maker while Nigeria “is expected to grow sharply, from a low base in financial year 2013 with new capacity coming from the greenfield Onitsha brewery, expansion of the Ilesha brewery, and robust growth in the non-alcoholic category,” the report said.

Currently, Africa contributes 12 per cent of the total sales of the beer maker’s markets globally. “The long-term growth outlook remains positive for SABMiller, in our view, driven by on-going emerging market volume growth, a recovery in Europe and the US, and the potential for cost savings,” the analysts noted in the report.

This strategy will open up a fierce war front in the beer market, given that even SABMiller’s rival, East African Breweries Limited, has in the past said it would pursue the strategy of low cost beer manufactured from sorghum to make it more affordable and grow market share.

EABL declined to comment on how SABMiller’s strategy is likely to change the playing field, but said the company was keen to develop “sustainable accelerated growth” for its business.

“For instance, through our innovation pipeline we have successfully demonstrated the power of public-private partnership in the development of our Senator brand that seeks to serve our value end consumers in a bid to offer product affordability and to mitigate against consumption of harmful illicit brews,” EABL’s group corporate relations director Brenda Mbathi said in an e-mail interview.

She said East Africa’s largest brewer has been active in the low cost “emerging” beer segment for many years and “we don’t expect that SABMiller’s strategy will have a significant impact on this established market”.