Analysis

Research In Focus - The Beer Engine that is Africa

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Africa is the final frontier for beer, according to Euromonitor International’s latest global briefing 'Africa: The Final Frontier for Beer'.

The continent is a relatively untapped territory for brewers, despite the noteworthy presence of SABMiller and Heineken in key African markets and in upcoming dynamic ones. Across Africa, brewers face underdeveloped infrastructure and low profit margins as a consequence of consumers’ generally low purchasing power. However, they should not dismiss its growth in beer volume sales and potentially future higher profit margins, driven by macroeconomic progress and demographic growth.

Brewers themselves will bring about development in this market in the short to medium term, by implementing strategies such as the beer affordability ladder and investing in future markets to take advantage of low-base growth. Brewers will thus significantly grow their footprint in the region and boost their volume sales globally.

Considering that African markets are so dissimilar from each other, there are some advantages that new entrants can exploit, such as the significance of regionality or provinciality in beer brands. SABMiller’s entry in Nigeria’s southern state of Onitsha, for example, allows it to manoeuvre around Heineken's dominance in Lagos and the Delta. Other strategies that brewers can look to include finding new beer platforms, especially in alcoholic beer alternatives, commercialising homebrews, and establishing or developing a cider/perry portfolio.

Beer affordability ladder as key strategy

In order to drive volume sales growth in emerging markets, beer affordability for low-income consumers is important. Logistical cost-cutting and sourcing can also help increase margins and maintain a degree of affordability, in line with low-income consumers’ purchasing power. Brewers in Africa seek to capture the attention of these consumers by developing an affordable range of beers. However, most of the biggest African beer markets have a relatively small economy lager segment. This is partly explained by the presence of non-lager brews, such as sorghum and tella beers, and the significance of other home-made brews.

Using locally-sourced fermentable starches cuts down on the costs of transport and processing, while local sourcing will also remove the excise duties factor and potentially attract other tax redemptions or subsidies from governments. This falls in line with the commercialisation of local, home-made brews that adhere to the tastes of low-income consumers, and especially their income threshold. Such initiatives have been implemented by Heineken and SABMiller in various African markets.

As global brewers face stagnant volume sales in developed beer markets, they will seek growth in vast expanding markets, such as Angola and Ethiopia, although this will be from a low-base for the latter. The benefit here is that Africa’s dynamic growth is derived from a number of markets. However, many of the markets have under-developed infrastructure that increases distribution and production costs, so they are largely long-term targets.

Significance of regionality and provinciality in Africa

Regional expansion for incumbents and new entrants in Africa is supported by the varied tastes and brand allegiances within African markets. Identification of consumption habits on a regional or provincial level provides global brewers with points of entry or expansion in major African beer markets.

An emphasis on national or local brands is vital in competing against localised market monopolies as well as in challenging a competitor’s nation-wide supremacy. In Nigeria, SABMiller’s Hero beer plays off the Igbo language, as spoken in the south of the country, in marketing the brand, thereby tapping into Biafra nationalism. In Mozambique, the company has established production facilities in the north and south of the country to reduce transportation costs for raw materials and the distribution of its finished products.

A varied strategy to tackling infrastructure under-development in African markets will help expand brewers’ footprint in the region.


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