Bralirwa, the Rwanda Stock Exchange listed brewer, last week commissioned its $34 million soft drinks plant, which is expected to help boost earnings.
The new plant comes at a time when regional brewers are increasingly facing challenges of higher taxation, growing competition and more financing costs as a result of increased investments. These challenges have seen share prices of the region’s listed alcohol manufacturers drop.
Bralirwa has shed almost half of its value, with the counter now trading at Rwf460 ($0.68) from a peak of Rwf860 ($1.28) at the beginning of the year.
EABL is trading at Ksh280 ($3), having lost four per cent since January. Tanzania Breweries Ltd (TBL) is the best performing counter, having gained 20 per cent since January.
But increased taxation of alcohol by governments across the region is expected to put considerable pressure on margins. For example, EABL says volumes on its Senator beer fell by 80 per cent, following a decision by the government to introduce a 50 per cent excise duty on keg beer.
“The emerging beer market is very price-sensitive. The increased taxes mean that the price of Senator is out of the reach for most in this market and this will affect volumes,” said Kuria Kamau, an analyst at Kestrel Investment bank.
Bralirwa has also suffered from the tough regulatory rules adopted by the Democratic Republic of Congo, with the Rwandan beer maker saying total beer volumes remained flat in the year ending December 2013 at around 1.65 million litres, the same as 2012.
Since the establishment of a brewery just outside Goma in early 2013, DRC has raised the import tariff on beer from $2.9 to $5.74 per crate and introduced a higher charge for quality standard verification, from $0.48 to $0.91 per bottle rack. These increases and the end of Bralirwa’s licence to produce and sell Guinness Foreign Extra Stout last year, have also affected pricing.
Analysts say that with beer volumes remaining subdued, future earnings will depend more on beer prices than on quantity sold. The say that manufacturers will increasingly opt to pass any rise in costs onto consumers as they seek to preserve their profit margins.
But the low consumption of beer in the region is expected to offer room for volume growth. This growth will be at both the high end premium market — supported by the region’s emerging middle class — as well as the low end market as increased earnings in this segment attract people away from illicit alcohol to consuming entry level brands.
According to Plato Logic, a beer market specialists firm, South Sudan’s average alcohol consumption per annum is two litres per capita while Tanzania’s is nine litres. This is much lower than South Africa, which consumes 60 litres per capita.
“We believe that with the right catalyst, there could be strong catch-up growth in consumption,” said Mr Kuria.
In Kenya for example, new brands that target the high margin spirits and beer drinkers are setting up shop. Bacardi has opened its first African office in Nairobi, while drinks like Jameson Irish whisky and Hennessy are chipping away at the high-end market. Heineken has set up shop and SABMiller has also re-entered the market.
Keroche Brewers — Kenya’s second largest beer manufacturer — is in a growth mode and expects its Ksh2.5 billion ($28.9 million) expansion plans to grow the brewer’s production capacity tenfold to 100 million litres annually, which should gain it a double-digit market share in two years.
In Tanzania, the war between the two major players — Serengeti and TBL — will be decided by who controls the distribution chain. Serengeti has a 30 per cent market share, while TBL controls over 65 per cent of the market share.
Serengeti, which is owned by EABL, pulled its product from the shelves last year as it sought to build its own distribution chain.
“We believe that by Serengeti Breweries developing its own distribution network, it will be able to sustainably grow its sales and increase its market share. The benefits of the new route to consumer strategy had already been realised by the second half of this year. As the performance in Tanzania continues to improve and the new distribution model is put in place, we expect to see more new products from Kenya being distributed by Serengeti Breweries,” said analysts from Kestrel Investment Bank.
Source: The East African
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