E-Malt.com News article: Ghana & Uganda: SABMiller confident of market potential in Ghana and Uganda

Investors interested in the economic promise of Uganda and Ghana may want to take a closer look at beer giant SABMiller Plc., dual listed in London and Johannesburg, MarketWatch reported on December, 11.

SABMiller, already the largest brewer in Africa, still sees plenty of opportunities in the continent and is investing in both countries capitalize on their strong economic growth and expanding middle classes.

It’s currently building a new brewing plant in Uganda while expanding its current facility in Ghana as part of a $260 million initiative on the continent.

“We are very optimistic in Uganda,” said Mark Bowman, managing director of SABMiller Africa, in an interview. “The long term prospect is very positive. With the economy growing, we expect beer consumption to also grow strongly. We are (also) very optimistic about Ghana. For the first time it’s transitioning to an oil economy. That makes a big difference about the potential of that as a market.”

SABMiller’s approach in the two countries is similar to the rest of the continent where per-capita beer consumption is only about one-quarter of the worldwide average. Beer, especially commercialized or imported beer, is for the most part still considered a luxury product that costs between 3 to 5 hours of work, Bowman said, adding the market is still mostly “informal,” which means alcohol is often home brewed or made and sold to small groups locally, he said.

Because of poor infrastructure and heavy traffic SABMiller has adapted its ways of doing business in the region. For instance, it generates its own power to operate brewing plants. It sources and treats its own water and has used unconventional delivery methods like wheelbarrows to deliver beer, Bowman said. To help boost consumption and make beer more affordable, the company has worked with many African governments and used local farming to help it lower tax and other costs. At the same time, to capitalize on the growing middle class, the company also creates a portfolio of brands to sell to different classes of buyers.

“Across Africa, that’s the same business model we’ve applied,” he said. “We are dealing with lots of small outlets and very fragmented markets.”

These adaptations have paid off for SABMiller. Its market share in Africa was 37% in 2011, more than double that of its largest competitor in the region, Heineken NV, which had 18%, according to Euromonitor data. The world’s largest beer company, Anheuser-Busch InBev only held a 0.7% share in Africa, Euromonitor data showed.

Africa as a region has grown at a double-digit pace the past few years for SABMiller, compared to the high-single-digit growth rate the total company experienced, Bowman said.

For Uganda specifically, SABMiller has strengthened its foothold in the market by developing a beer that uses sorghum as a key ingredient. Called Eagle Lager and developed about seven years ago, Bowman said the beer now makes up 55% of its sales in the country. It contracted with 6,000 to 8,000 farmers to grow the sorghum, a move that’s allowed it to pay lower tax to the government and helps it lower the price of beer to make it more affordable to a bigger population. Because of such innovations, the company’s market share in Uganda has risen to 56% of the market from about 42% the past four years, he said.

“We are very confident in the future of Uganda,” he said.

To further help it cut taxes and minimize foreign exchange risk from having to import barley, the most widely used ingredient for beer, two years ago SABMiller also started to grow barley locally, challenging the typical notion in Africa that barley can only grow in the Northern Hemisphere, Bowman said. The company is planning to do the same in other African countries.
“The idea is to do local grain to localize the cost base,” Bowman said. “It makes a difference to the farmers, and we get good support from the government.

In Ghana, a market Bowman admitted “has been challenging” against rivals such as Heineken and Diageo and where it “struggled with profit,” SABMIller “is starting to grow.” SABMiller brought its Chibuku brand to Ghana. An opaque beer made from maize and sorghum, Chibuku, which sells at about half the price of a normal beer, “is attracting consumers with less money” in Ghana, Bowman said.

“It gives us a lower tax rate,” Bowman said. “It gives a little alcohol, but it also gives starch. It’s like a meal in a way. It commercializes this very big informal market that exists below beer by giving people the first taste of beer. We see it as a new opportunity.”

For its regular lager, SABMiller has gained market share in Ghana by improving marketing and using new packaging. The company has provided training and financial management services to local outlets to make them more appealing to visit. As a result, SABMiller’s market share of beer in Ghana has grown to 38% from 28% the past two to three years, he said.

Ghana and Uganda “have quite a bit of potential because they remain small,” Bowman said, adding each represents about 6% to 7% of its African total. “Their growth rates are probably going to be higher than the rest of the markets.”

12 December, 2012