The gin revolution brings EABL big profits

Gin contributed 5 percent of Diageo’s reported net sales in the period July to December 2021. [Courtesy]

The gin revolution in Africa was fueled by the prodigious consumption of Gilbey’s in Kenya.

This is according to the interim results of Diageo, a London-based multinational brewer that owns a majority stake in East African Breweries Ltd (EABL), for the first six months to December 2021.

Gin contributed 5 percent to Diageo’s reported net sales for the period July to December 2021 as sales grew 21 percent over the period.

Made from juniper berries, Gilbey’s is a type of gin with a slightly piney flavor with hints of fruitiness and pepper.

It became the drink of choice for many Kenyans during the pandemic, a time when pubs and clubs were closed.

The drink’s growing popularity has fueled the gin revolution around the world.

Unlike whiskey, Gilbey’s is reasonably priced, a key selling point for budget-conscious Kenyan consumers. For example, a 750ml bottle costs around Sh1,250 in a liquor store.

John Musunga, the managing director of Kenya Breweries Ltd, a subsidiary of EABL, noted that gin consumption around the world has peaked.

“Consumers will choose what works for them, and this time it’s gin,” he said.

EABL’s profits more than doubled to Sh8.7 billion in the first six months, despite the brewery announcing an interim dividend of Sh3.74 per share.

The performance is compared to an after-tax profit of Sh3.8 billion for the brewery in the first half of 2020, a time when alcohol sales were hit by the negative impact of the Covid-19 pandemic, including the closure of bars and a Dusk to dawn curfew.

Kenyans, says EABL chief executive Jane Karuku, drink for social reasons. [Courtesy]

The company’s share price on the Nairobi Securities Exchange (NSE) rose 7.4 percent to trade at Sh167 by the close on Friday.

Mainstream spirits, a category into which Gilbey’s falls, grew 25 percent during the period, while premium spirits grew a fifth.

In fact, according to official figures, imports of brandy, gin, whiskey and rum increased by 45 percent at the height of the Covid-19 pandemic. This is the highest jump in seven years.

Data from the Kenya National Bureau of Statistics (KNBS) shows that the volume of spirits imported rose to 16.3 million liters in 2020, compared to 11.2 million liters of spirits brought in by Kenyans from overseas the year before.

This was at a time when the negative effects of the Covid-19 pandemic were eroding the purchasing power of many Kenyans, and millions of people were losing their livelihoods.

The period also saw the highest increase in spirits imports since 2013, when liquor purchased overseas increased by 72 percent.

Rising imports of expensive hard liquor reflect not only changing tastes and consumer preferences among drinkers as their purchasing power has increased, but also a dramatic change in drinking habits during the pandemic period of economic difficulties.

However, beer consumption has made a comeback after the end of the dusk-to-dawn curfew and permission to stay open into the early hours. Beer sales rose by 17 percent in the reporting period.

But the biggest jump in sales came from Senator Keg, which grew 49 percent over the period.

Unlike bottled beer, which could be delivered to your home, Senator beer is served in clear plastic cups.

Kenyans, said EABL chief executive Jane Karuku, drink for social reasons. As such, retail sales are more likely to rebound after a period when most people have been drinking from home.

“There will be no significant changes as we move forward,” Karuku said at a press conference following the release of the company’s half-year results.

The tax official also benefited from this growth as the Kenya Tax Agency (KRA) collected more indirect taxes such as consumption tax and the 16 percent Value Added Tax (VAT), as well as direct taxes such as corporate income tax.

EABL Managing Director Jane Karuku. [Courtesy]

Indirect taxes increased to Sh41.9 billion from Sh33.7 billion. Direct taxes, on the other hand, more than doubled from Sh2 billion to Sh4.1 billion.

However, Ms Karuku warned that the trading environment remains uncertain given the ongoing socio-economic impact of the pandemic, volatility in consumption taxes and the upcoming campaign period.

“However, we are cautiously optimistic that regional economies will continue on the recovery path and that growth momentum will be maintained across East Africa,” she said.

KRA collected more than Sh15.7 billion from wines and spirits in fiscal 2019-2020, compared to Sh13.6 billion in the previous fiscal year.

This is even as the excise duty on beer was cut by more than a third from Sh27.8 billion to Sh19.1 billion.

“The drop in beer excise tax receipts may have been due to the closure of bars and other entertainment venues due to Covid-19 restrictions, while the drop in financial transactions was due to the waiver of some transaction costs,” reads part of the Economy survey, which showed that almost 738,000 jobs were lost last year even as the size of the economy shrank by 0.3 percent.

Excise tax revenue on wines and spirits increased 726 percent between 2011 and 2020, official data shows.

In 2011, the Treasury collected just Sh2.16 billion from wine and spirits, but by the end of 2020 this had shot up to Sh15.7 billion.

However, the excise tax on beer has risen just 32.2 per cent from Sh14.45 billion in June 2011 to Sh19.11 billion in June 2020.

The excise tax levied on wines and spirits in the fiscal year ended June 2020 was a fall of more than a third from the Sh27.8 billion the tax official received in the previous fiscal year.

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