SABMiller 'up against huge and very capable competitors' in Kenya, company executive says; SABMiller re-entered Kenyan market in 2010, has since launched several beer brands in country
May 23, 2014
– UK-based brewer SABMiller's experience of doing business in Kenya has been anything but smooth. It made a decision in the late 1990s to enter East Africa's largest economy through a business partnership with local brewer East African Breweries Limited (EABL).
But the deal soon fell apart, forcing SABMiller to shut down its Thika plant and exit Kenya in 2002.
Eight years later, the brewer took control of family-owned Crown Beverages Limited — the bottlers of Keringet drinking water— making a quiet re-entry into the Kenyan market.
SABMiller has since launched several beer brands in Kenya, unsettling a market that is dominated by its partner-turned-rival, EABL.
The range of beers that SABMiller has introduced in Kenya include Castle Lager, Castle Milk Stout, Redds, Castle Lite and US brand Miller Genuine Draft.
Business Daily's Mugambi Mutegi talked to Crown Beverage Kenya managing director, Gareth Jones on SABMiller's return to a market it only left a few years ago and how it plans to crack it this time around.
Not much is known about SABMiller's operations in Kenya. How big is your operations here and how do you fit into it?
I am the general manager, for Kenya operations. This is a new position that was created in the second half of last year with me as the first occupant. Previously, we had a managing director in Kenya.
He was promoted to become the managing director of SABMiller's challenger markets. These are countries like South Sudan, Kenya and Ethiopia where we have a relatively small market share and are seeking to build scale. That restructuring required somebody to step in and look after the Kenyan market, hence my appointment.
Our entire Kenyan team is based in Ruiru where we recently rented an office and warehouse.
How long have you worked for SABMiller?
I have been working for SABMiller for 15 years and my last assignment was in Durban where I was a district manager, a distribution and sales role.
In terms of scale, the market I was handling in South Africa is more than seven times the size of SABMiller's business in Kenya.
Now that you have touched on comparisons, how different is the Kenyan business environment from that market?
For starters, beer in Kenya is more expensive compared to my home country. In fact, the price is slightly more than double South Africa's where a 750ml bottle of beer goes for about Sh90. In Kenya, you pay about Sh130 for 500ml.
Another major point of difference is the route to market model. In South Africa, we have direct store delivery model that is supported by more than 40 SABMiller-owned distribution depots nationally. In Kenya, we use an independent distributor network to reach retailers with only 4 company-owned distribution centers.
My observation is that whilst the Kenyan model adds some cost into the distribution channel, it allows us to leverage strong local insights and relationships the distributors have in their respective areas.
SABMiller controls more than 90 per cent of the South African alcohol market. But here, your former partners, EABL, have the upper hand. This is definitely a new experience for you.
Yes, SABMiller is coming into the Kenyan market as the challenger. Needless to add, we are up against huge and very capable competitors. It is clear that for us to make any inroads locally, we have to apply ourselves and make sure we do a good job. Personally, this is a new and exciting experience for me. The size and complexity of the challenge in Kenya is enormous.
About two years ago, SABMiller and EABL were involved in short-lived brand war that was defined by the launch of new products— sometimes taking place only hours apart. Things have since cooled off. You recently introduced Nile Special, a popular Ugandan brand. What has been the reception by the target consumers here?
Nile Special was launched in the Western region in December and we quickly realised that it was popular beyond Ugandans in the area hankering for a piece of home. We decided to launch it nationally about two months ago.
The beer is priced competitively at between Sh20 and Sh30 less than other mainstream Kenyan beers and with an alcohol content of 5.6 per cent it is a full-strength beer. I believe these attributes, and the bottle's packaging, sets it up for success with Kenyans.
READ: Uganda's Nile Special imports stoke beer war
In terms of strategy, what informed the introduction of Nile Special?
Crown Beverage has a full portfolio of products in Kenya, each with its own target market —the top end of the market and others in the mainstream category.
Nile Special is a lower mainstream beer. This is a category and price point we have not played in before. Consumers are under pressure financially and a well-priced beer that does not compromise on quality is definitely attractive.
We also launched Redds Vodka Lemon in July last and so far, the response has been great.
Despite being in the country for about four years now, you are still importing products from neighbouring countries. Isn't this too costly and are there plans to set up a local brewery?
We source Nile Special from our Uganda brewery while other brands are imported from Tanzania. The price points of beer in Kenya are still high and we still achieve sustainable margins even after importation.
Our aspiration over time is to set up a local brewery; that has never been in question. However, we want to grow our volumes to the point where it can justify the setting up of a local plant.
Let us switch to the Keringet water business. Are there any new developments there?
Keringet provides us with substantial scale and fits well with SABMiller Africa's multi-beverage business model.
The number of players in the water market has increased exponentially over recent years forcing consumers to turn to brand names they can trust and Keringet has been a beneficiary of this.
This has resulted in double-digit volume growth over recent years and we have found ourselves having to make capital investments to keep up with demand, especially in convenience packs —one litre bottles and below. Our main bottleneck in terms of capacity was with our blow-moulding machine which can 'blow' a maximum of 4,000 bottles per hour.
We have invested over Sh25 million in a second machine which can produce another 6,500 bottles per hour. The new machine, which we commissioned this month, will more than double our existing capacity.
The blow-moulder is the third significant investment in our water production facility this year, having already purchased a new air conveyor for Sh9 million and a new air compressor for Sh16 million.
In the past year, we have also done some pack rationalisation. We discontinued one of our water brands —Pur Aqua — which is one of the brands we found when we bought out Crown Foods.
As a parting shot, comment on latest policy change in the Kenyan alcohol industry, Alcoblow.
I was actually quite surprised that Kenya's beer market was not as controlled as it is in South Africa where breathalysers have been in place for years. Back at home, drunk-driving is a criminal offence.
Chauffer services and at-home drinking have flourished and I expect the same, especially the former, to get more sophisticated in Kenya with time.
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