East Africa: Industry Battles Over Liquor Market
Alcohol producers in East Africa are battling for control of the liquor market — currently the most lucrative — in the face of an onslaught from imports, counterfeits and other influences. Alcohol industry executives say an increase in taxes, competition, drought, economic growth that does not trickle down, political instability, regulatory headwinds and millennials-led dynamics are altering the alcohol industry in favour of spirits and low-end beer brands.
Despite economic growth in East Africa averaging 6% in recent years, the ‘trickle-down’ effect has been minimal, which has impacted disposable incomes and slowed down bottled beer consumption in favour of liquor. Companies like East Africa Breweries Ltd (EABL) and Kenya Wines Agency Ltd (Kwal) have recorded significant growth in the liquor market, a trend largely attributed to easily available raw spirits and a growing low-end brands market.
Alcohol tax hikes are effective (just not for industry profits)
Kenya has in the past five years raised excise duty on bottled beer four times including a 43% increase that took effect in December 2015 — the highest on the continent. In the 2017 budget, Kenya increased excise tax on liquor to $1.8 per litre from $1.6 per litre. These tax hikes are effective in reducing alcohol use and related harm, which cuts into alcohol industry profits, but increases societal benefits. The tax increases have eroded growth in the bottled beer market. In the just concluded financial year, EABL bottled beer market recorded a 7% decline for both premium and mainstream brands. That decline was mitigated by growth in liquor sales. EABL is banking on increased capital investments in the next years in oder to grow its spirits business to reverse a drop in profits.
Kwal has also recorded a steady growth in its spirits business to 20%, from single digits, and has decided to shoulder the increase in excise duty instead of passing the tax hike on to consumers through higher prices. Lower prices are an essential tool in the battle for dominance of the East African liquor market.
Socio-economic and environmental factors put pressure on Big Alcohol
For the major alcohol producers in the region drought, stagnation or decline in disposable income, political instability in Burundi, South Sudan and now also Kenya, and governments’ efforts to better regulate the alcohol industry to prevent and reduce alcohol-related harm have combined to create challenging regional markets.
EABL, which is owned by the world’s fourth largest alcohol producer Diageo, reacts to the pressure with increasingly aggressive tactics, concerning marketing and political lobbying activity.