East African Breweries’ growth to slow this year
East African Breweries (EABL), in which Diageo has a stake, took a surprise decision in February 2014 to end daily operations at its Nairobi plant after the brewer posted the slowest first-half sales growth in four years.
The brewer said its Ruaraka plant is now running for five days a week – Monday through to Friday – as opposed to a seven-day operation because of the downturn in one of its top-selling products, the budget beer Senator Keg.
The 30 percent cut in operation days is aimed at reducing costs. EABL said the duty imposed on Senator Keg had slashed sales volumes on the brand, warning that slump would curb profit growth this year.
The new tax imposed on Senator Keg, previously exempt from excise duties, hiked its wholesale price by 67 percent to KES 6,544 (USD 75.9 for a 50 litre keg) and reduced sales by 85 percent in the six months through December 2013.
Senator Keg, launched in 2004, is sold on draught and therefore cheaper than bottled beer. It helped EABL to capture consumers in the low-end market, who are price sensitive and have little disposable income to spend on alcoholic beverages, especially beer. Senator Keg proved so popular that in 2008 the brand overtook the brewer’s higher priced Tusker lager brand in terms of volumes.
Despite a decline in volumes, EABL managed to grow sales by almost 4 percent to KES 31.8 billion (USD 369 million). Half-year profits rose 5 percent to KES 3.9 billion (USD 44 million), it was reported.
EABL is forecasting single-digit revenue and profit growth in its current financial year ending June 2014.
