An SABMiller warehouse in South Africa

An SABMiller warehouse in South Africa

Making beer more affordable is the biggest immediate challenge facing SABMiller in Africa, according to the brewer's managing director of the continent.

Cheaper beer is needed to compete with black market alcohol and provide African consumers with a leg-up to the beer market, said Mark Bowman.

More than 300m Africans live on US$1 per day or less, according to the Miller Genuine Draft brewer.

"We need to find opportunities across all our markets to reduce the entry price of beer, because beer is highly aspirational and we're competing with home brew and illicit spirits in many markets," Bowman told analysts yesterday (18 February) at the CAGNY conference in Florida.

SABMiller is confident that it can use local sourcing of raw materials in Africa to help reduce the cost of beer without compromising profit margins.

In 2002, SABMiller's Uganda subsidiary, Nile Breweries, obtained a Government tax break for sorghum production and began producing clear sorghum lager, named Eagle. It sells for up to 85% of the price of standard beer on the market.  

Around 8,000 smallholder farms now have direct contracts with Nile Breweries and Eagle, which is also sold in other African countries, has reached volume sales of 1m hectolitres with annual growth of 25%.

"It should continue at that pace, at least, for the next few years," said Bowman.

Traditional opaque beer, brewed from a mixture of sorghum and maize, is another segment that SABMiller is looking to harness to encourage more Africans into the beer sector.

"It's an area of our business that we generally underinvested in as we felt that the category was perhaps going backwards," said Bowman. "But, we've seen in recent times that there's quite a bit of growth and we now have a dedicated team driving it and are looking at expanding to other markets where traditional beer exists."

Opaque beer is generally only a quarter of the price - and between two and three times the market size - of standard lager.  

The affordability of beer in Africa is something other brewers have also sought to address as they eye the continent for strong growth.

Diageo, which now counts Africa as its largest market for Guinness by value, has cut a tax deal with the Kenyan Government to produce a discount beer named Senator Keg.

SABMiller chief executive Graham Mackay told analysts at CAGNY that Africa is an "exciting market". Per capita beer consumption is 60 litres in South Africa, but is less than nine litres in most other African countries and "rising firmly", he said.

SABMiller is set to have opened four new breweries - in Southern Sudan, Tanzania, Mozambique and Angola - by the end of its current fiscal year. The brewer is spending US$370m on capital projects this year, although this will fall to US$200m next year.

Mackay added that, alongside beer, SABMiller is "actively expanding into other beverage categories".

Via a tie-up with Castel, SABMiller is the leading bottler for The Coca-Cola Co in 20 African markets.

Earlier this week, SABMiller confirmed to just-drinks that it has acquired Rwenzori, the leading bottled water group in Uganda. Packaged water volume sales are growing by 17.5% annually in Africa and SABMiller plans to sell 1.4m hectolitres in its fiscal 2010, to the end of March.