Kenya: East African Breweries counting on surging demand for low-priced Senator Keg beer and scotch to counter impact of tax increases

Kenya’s East African Breweries is counting on surging demand for its low-priced Senator Keg beer and also scotch whiskey to counter the impact of tax increases, its chief executive was quoted as saying by Reuters on July 26.

The brewer, which is controlled by British drinks group Diageo, on July 25 reported a 52% jump in pretax profit for the year to June as volumes grew 11% and sales surged 12%.

The strong performance partly reflected much weaker comparatives for previous financial year, as well as a stable business environment and higher production capacity.

But a plan by Kenya’s government to increase excise duty on spirits by 15% in September, well above the inflation rate of 5%, could cloud the company’s outlook.

“(This) is why we have got some time to try and have the debate with our stakeholders in government as to the wisdom of such a significant increase,” Andrew Cowan, East African Breweries’ CEO, told Reuters after an investor briefing.

Sales of Senator Keg, a low-priced lager made from locally grown sorghum, rose by close to a third in the last financial year, which will help to offset the impact of higher taxes from September.

Senator Keg has been one of the fastest growing brands for EABL in recent years due to huge demand from price-sensitive consumers, some of whom have been switching to branded beer from home brews, some of which are illegal.

A new Senator Keg plant in the western city of Kisumu is expected to double output to full capacity by year-end, the CEO said.

Cowan said growing demand for scotch whiskey like Johnny Walker and Singleton among consumers could also counter the potential headwinds for the business from the taxes.

“There is a wonderment about scotch... consumers find it very aspirational and very cool to be seen to be drinking scotch,” he said.

26 July, 2019