New Kenyan brewery to battle beer behemoth

By Duncan Miriri

NAIVASHA, Kenya (Reuters) - Standing in a massive burgundy-roofed brewery in the Kenyan town of Naivasha, Timothy Gikuhi peers at an empty bottle, looking for specks of dirt.

The Edinburgh-trained chief brewer knows he needs to be thorough if Keroche, Kenya's newest brewery, is to challenge the might of East African Breweries (EABL), whose beers and spirits dominate the country's buzzing bars.

Kenyan-owned Keroche hopes to tap a spring of consumer patriotism among a growing middle class in east Africa's largest economy when it launches its new beers later this month.

But it will have to take on the world's biggest alcoholic drinks group -- Britain's Diageo Plc.

"We are prepared for the challenge, as long as there is a level playing field," said Gikuhi. "We will tell consumers that our beer is truly owned and brewed by Kenyans."

EABL, a Nairobi bourse blue chip and east Africa's second largest company by market capitalization, is majority-owned by Diageo, maker of Johnnie Walker whisky, Smirnoff vodka and Guinness, a beer popular across Africa.

Multinationals like Diageo and London-based SABMiller dominate Africa's drinks industry, leaving local brewers with small niches in a market where consumption is growing as prosperity swells the ranks of the middle class.

Diageo and SABMiller went head to head in Kenya in the late 1990s in what became known as the Beer Wars.

Castle Breweries, an SABMiller subsidiary, closed its Kenyan operation after four years in 2002, citing high import duties as a sign of local hostility. The multinationals agreed a geographical carve-up to stem costs, leaving EABL dominant in Kenya and SABMiller in neighboring Tanzania.

Many Kenyans stuck by EABL because it has a minority Kenyan shareholding. Its Tusker beer, named after the elephant that gored one of the brewery's founders on a hunting expedition in 1923, was marketed under the slogan "My Country, my beer."

As Keroche prepares to start marketing its Summit beers, sector analysts are already talking of "Beer Wars 2."

ROOM FOR ONE MORE?

Keroche has invested 1 billion shillings ($13.5 million) -- funded by a loan from Barclays International -- in its beer plant in Naivasha in the Great Rift Valley. It employs 100 workers and has a 40,000 bottle-per-day capacity compared with EABL's 176,000 bottle-per-hour capacity at its Nairobi plant.

Keroche's Managing Director Tabitha Karanja said she hoped to snare a 25-30 percent market share in five years. EABL holds around 50 percent of the market with the rest dominated by illicit home-made brews, often laced with industrial chemicals.

"Consumers are waiting for our brands ... It is a choice that they have never had for the last 86 years," Karanja said, referring to the foundation of EABL in 1922.