East African Breweries Ltd took a shock when Kenya closed hospitality businesses due to the pandemic
| TOM COLLINS | For any company that relies on open points of sale to sell goods, Covid-19 was a particular challenge. When Kenya responded to the pandemic by shutting down hospitality businesses and introducing a nightly curfew, East African Breweries Limited (EABL), the region’s largest beverage company, saw a huge drop in profits.
The brewery’s net income declined 47.4% in the second half of last year, leading management to withdraw the interim dividend for the first time in history to save cash. However, the decline was an improvement over the previous six months and thus actually a slight rebound.
John Musunga, Managing Director of Kenya Breweries Limited (KBL), EABL’s subsidiary in the local market, says the growth has been driven by strategic decisions by the company.
“When Covid-19 hit, our business was a little shocked with all the closings,” he says.
“But during this period we looked for growth opportunities. We have revised the so-called off-trade, i.e. all sales from supermarkets, cash & carry and e-commerce. We are now in a better environment than we were two years ago and hopefully, when everything normalizes, we will have a new segment that we did not have in the past. “
Change customer habits
Not only the places where alcoholic beverages are consumed, but also the habits and preferences of customers have changed. Bottled beers like Tusker and White Cap used to be some of EABL’s best-selling products.
But cans have replaced bottles as the beverage of choice for customers who prefer to purchase alcoholic beverages to take with them either for weekend getaways, to drink in parks, or to meet friends. Spirits have also gained popularity for the same reason.
EABL, which is majority-owned by the British Diageo, one of the world’s largest producers of alcoholic beverages, produces well-known spirits such as Johnnie Walker as well as local creations such as Kenya Cane. The hardest hit beverage line was the lower-end Senator Keg brand, which is sold exclusively in bars and which fell 29% over the past year.
“At first the bars were closed for two or three months and that’s the only place you can get this product, so it really was a hit,” says Musunga.
Value products were also affected, as job losses in the informal sector were widespread at the start of the pandemic. While office workers were largely able to work remotely, Kenyans in the informal sector struggled to work during the initial lockdowns, resulting in a loss of purchasing power.
Coronavirus regulations also slowed Kenyan manufacturing and processing as the industry had to adjust to ensuring employees adhere to social distancing and are protected from the virus.
But Musunga says there is a big difference between the “first wave” and the current “third wave” in how EABL is dealing with the pandemic.
“We found a way to continue production, found ways to work with additional distributors to ensure that these products are available in the point of sale for the limited time that they are available under the regulations,” he says.
Overall, net sales in Kenya, which account for 66% of total group sales, declined 10% last year. However, sales in Uganda and Tanzania rose 13% and 17%, respectively, as the lockdowns in both countries were less severe compared to Kenya.
Although the company tried to tighten its belt by cutting capital investments and managing costs during the first wave of the pandemic, EABL is now looking to start reinvesting in the business, Musunga says.
A recent study by the brewer found that 78% of customers who have used EABL home delivery services will continue to use them in the future.
“This tells you that the consumer is more comfortable in the cramped space at home than they used to be when they wanted to go out and spend money,” says Musunga.
KBL has launched an e-commerce platform called Party Central to secure sales across the lockdown, and the CEO says the company will continue to invest in such “omnichannels” in the future.
The brewer is also likely to begin launching a range of new products to continue to tap into Kenya’s changing and evolving taste buds. About a decade ago, lager and Guinness were pretty much the only beer drinks available for purchase in Kenya.
However, the global microbrewery revolution has pushed consumer choice towards a wider variety of hop beverages. Just before the pandemic started, EABL launched Tusker Cider, Tusker Ale and Guinness Hop House.
“It’s sure to be a mixed bag, our ciders have done really well because we introduced them long before the pandemic,” he says. “But our Tusker Ale and our Guinness Hop House were new brands at the beginning of Covid-19, so we couldn’t achieve as much with them as we would have liked in terms of marketing.”
The products were also in part a response to a growing subculture of independent brewers introducing IPAs and stouts to the Kenyan market. Although EABL is by far the largest brewery in the region, it must remain relevant to a younger generation with an increasingly globalized perspective in order to maintain their market share.
“If you are not innovative in this category, you will die a slow and natural death,” says Musunga.
Ultimately, EABL’s recovery is tied to Kenya’s economy and changing Covid-19 restrictions. However, the outlook for Kenya regarding the coronavirus is not looking good.
However, Uganda had fallen into a second lockdown just 42 days in a row as coronavirus cases increased.
“If you ask me, our first priority as the government and the people is to make sure that vaccinations take root because that is the foundation for reopening the economy,” says Musunga.
Source: Adapted from African Business Magazine