October 13, 2008 / 12:14 AM / in 9 years

New Kenyan brewery to battle beer behemoth

NAIVASHA, Kenya (Reuters) - Standing in a massive burgundy-roofed brewery in the Kenyan town of Naivasha, Timothy Gikuhi peers at an empty bottle, looking for specks of dirt.

<p>Brewer Timothy Gikuhi holds up an empty beer bottle to inspect its cleanliness in Keroche Brewery, Kenya's second brewery situated in the small town of Naivasha, about 84 km (52 miles) from the capital Nairobi, September 2, 2008. REUTERS/Antony Njuguna</p>

The Edinburgh-trained chief brewer knows he needs to be thorough if Keroche, Kenya’s newest brewery, is to challenge the might of East African Breweries (EABL), whose beers and spirits dominate the country’s buzzing bars.

Kenyan-owned Keroche hopes to tap a spring of consumer patriotism among a growing middle class in east Africa’s largest economy when it launches its new beers later this month.

But it will have to take on the world’s biggest alcoholic drinks group -- Britain’s Diageo Plc.

“We are prepared for the challenge, as long as there is a level playing field,” said Gikuhi. “We will tell consumers that our beer is truly owned and brewed by Kenyans.”

EABL, a Nairobi bourse blue chip and east Africa’s second largest company by market capitalization, is majority-owned by Diageo, maker of Johnnie Walker whisky, Smirnoff vodka and Guinness, a beer popular across Africa.

Multinationals like Diageo and London-based SABMiller dominate Africa’s drinks industry, leaving local brewers with small niches in a market where consumption is growing as prosperity swells the ranks of the middle class.

Diageo and SABMiller went head to head in Kenya in the late 1990s in what became known as the Beer Wars.

Castle Breweries, an SABMiller subsidiary, closed its Kenyan operation after four years in 2002, citing high import duties as a sign of local hostility. The multinationals agreed a geographical carve-up to stem costs, leaving EABL dominant in Kenya and SABMiller in neighboring Tanzania.

Many Kenyans stuck by EABL because it has a minority Kenyan shareholding. Its Tusker beer, named after the elephant that gored one of the brewery’s founders on a hunting expedition in 1923, was marketed under the slogan “My Country, my beer.”

As Keroche prepares to start marketing its Summit beers, sector analysts are already talking of “Beer Wars 2.”

ROOM FOR ONE MORE?

Keroche has invested 1 billion shillings ($13.5 million) -- funded by a loan from Barclays International -- in its beer plant in Naivasha in the Great Rift Valley. It employs 100 workers and has a 40,000 bottle-per-day capacity compared with EABL’s 176,000 bottle-per-hour capacity at its Nairobi plant.

Keroche’s Managing Director Tabitha Karanja said she hoped to snare a 25-30 percent market share in five years. EABL holds around 50 percent of the market with the rest dominated by illicit home-made brews, often laced with industrial chemicals.

<p>A brewer checks the temperature at a quality control lab at Keroche Brewery, Kenya's second brewery situated in a small town of Naivasha, about 84 km (52 miles) from the capital Nairobi, September 2, 2008. REUTERS/Jasleen Sethi</p>

“Consumers are waiting for our brands ... It is a choice that they have never had for the last 86 years,” Karanja said, referring to the foundation of EABL in 1922.

Keroche plans to sell its Summit Lager and Summit Malt brands using existing distribution networks. It has been making fortified wines for 10 years, mainly for low-income earners, but a jump in excise tax on its wine in 2006 pushed it to diversify.

The prospect of fresh competition does not appear to worry EABL’s chief executive officer, Gerald Mahinda, who said the Kenyan market was large enough to accommodate other players.

“There is still a large, unfulfilled segment in this economy. We welcome competition, we will go on doing what we know best which is our strong brands and innovation agenda.”

Some Kenyan analysts agree.

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“The Kenyan market is not saturated at all,” said Dzika Danha of Renaissance Capital, adding that Kenya’s per capita beer consumption is around 12 liters a year, compared with 58.2 liters in South Africa.

“(Keroche) will not have a short-term impact on EABL’s market share or positioning. Keroche’s success will depend on its strategy,” said Danha.

A POPULAR PASTIME

Drinking is a popular pastime in Kenya, where a youthful population has spare cash thanks to economic growth averaging around five percent a year over the past five years.

Research firm Consumer Insight says the leading brands are Tusker, Guinness and Pilsner -- all made by EABL.

Kenya teetered on the edge of political and economic disaster after a disputed election last December. Around 1,500 people were killed as rival political factions clashed over the vote and long-standing land and tribal disputes came into play.

Rival leaders have since formed a power-sharing government but sectors like tourism were hit hard.

Some analysts expect economic growth this year to slow to about 4.5 percent from 7 percent in 2007. Prime Minister Raila Odinga told Reuters on October 6 that the global financial crisis would hit the economy badly, although he gave no figures.

For the year to June, EABL reported a pre-tax profit of 12.3 billion shillings, up 16 percent despite the violence, rising inflation and higher fuel prices. The volume of beer it sold also rose 16 percent to 770,000 hectoliters.

Some Nairobi drinkers, long used to EABL and a few imports such as Heineken, said they were keen to sample Keroche’s products. “If Keroche brews good beer, we might buy it because we feel it belongs to Kenya,” said Francis Aduku.

For full Reuters Africa coverage and to have your say on the top issues, visit: africa.reuters.com/

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