Spirit merchant takes advantage of rising demand in Kenya by producing locally

Spirit merchant Diageo’s East African Breweries Limited (EABL) plans to start producing the international brand Captain Morgan rum locally in East Africa. This will help the company cut costs and meet the rising demand of the domestic consumers for its spirit business.

“The liquid is loved,” said Andrew Kilonzo, EABL’s head of premium spirits sales, to Reuters. “What we are doing is to make sure we democratise it to make it more widely accessible.” 

In 2017, Diageo, which holds more than 50 percent stake in EABL, shed 4 percent of its gross profit and 3 percent of its operating profit, despite a 28 percent sales growth in Tanzania. Sales of spirits grew 20 percent in Kenya, which marked a shift in the East African nation where beer, including EABL’s Tusker, has long been the preferred alcoholic beverage.

At the Nairobi plant where Tusker beer is produced, EABL’s head of spirits, Anne Joy Michira-Muhoro, said, “We have more and more people interested in whisky as a category and we also have more and more affluence.”

In a bid to remain a leading brand, the Nairobi based company, which has subsidiaries in Uganda, Tanzania, and South Sudan told Reuters it has begun investing the 1.4 billion shillings ($13.88 million) earmarked for the spirits division. Its investment includes funding for a 20,000 bottles per hour distillery line that will double production at its plant on the outskirts of Nairobi. The company also revealed that production is slated to begin within the next month.

If produced domestically, the retail cost of  EABL’s spirit, Captain Morgan Gold will be between 800 and 900 shillings per 750 ml bottle which is half the price of imported bottles.

According to alcohol industry consultancy IWSR, in recent years, Kenya’s spirits market has fared better than that of South Africa, Nigeria and Angola. Kenya is also Diageo’s fastest growing market for the sales of Johnnie Walker whisky.

“The strong growth in spirits from vodka to gin and rum is partly driven by growing middle-class incomes in Kenya,” said Daniel Mettyear, an analyst at London-based IWSR. “People can afford to show their economic progress through what they are drinking.”

Reuters also revealed that bar owners in Nairobi say that younger drinkers are influenced to shift from beer to spirits by social media and television. Many fuel stations now sell small bottles of spirits alongside cans of beer.

EABL’s spirits faces strong competition from Pernod Richard which imports Jameson whiskey, and from domestic distiller Africa Spirits.

The rich history of Diageo in Africa

According to an article on The Nerve Africa titled  “The spirit merchant and its 20-year operation in Africa” Diageo’s love affair with Africa precedes 1997 when it was formed through a merger between Grand Metropolitan plc and Guinness plc. Johnnie Walker first found its way to Africa when it arrived in Kenya back in the 1890s. Guinness has been brewed locally in Nigeria since the 1960s. Diageo rides on this rich history and the great understanding of the continent to continue to grow its business.

Diageo is in Africa for the long haul and the company shows this by putting structures in place to ensure it wins, but avenues such as going local.

The Nigerian beer market is one of the fastest growing beer markets in the world. This growth is driven by strong population growth which has led to an increase in consumption. According to John O’Keeffe, President Diageo Africa, insights like this “is the reason why we will continue to invest and stay through the very cycles that we witness right now because we know that the future is going to be bright in Africa”.