* SABMiller cuts beer prices to boost Africa demand
* Uses sorghum and cassava as cheaper inputs than barley
* Looks for excise tax cuts for sorghum and cassava beers
* Sees growth from these beers in Uganda and Mozambique
By David Jones
LONDON, March 13 Africa's biggest brewer
SABMiller is ratcheting up production of more affordable
beers in the continent using sorghum and cassava in place of
more expensive barley to drive growth in what is already the
group's fastest growing region.
The London-based brewer's Africa region - minus South Africa
- produces 13 percent of group profits, and strong beer volume
and earnings growth is being driven by its biggest markets such
as Tanzania, Mozambique, Zambia and Botswana.
A large part of the strategy directed by its African
regional managing director Mark Bowman is to make beer more
affordable and less of a luxury product than when it is priced
at around $1 a bottle across the continent.
"By African standards, beer is expensive so we look at
sub-inflation pricing and to develop an affordable category,"
Bowman told Reuters.
He says that the outlook for the beer industry in Africa is
sound with strong GDP growth of 4-6 percent per annum and
population growth of 2.5 percent, and within that framework a
low priced entry to beer drinking is extremely important.
The world's second largest brewer and maker of brands such
as Castle, Miller Lite and Peroni has set ambitious annual
targets for Africa to grow volumes 6-8 percent and earnings by
over 10 percent, and Bowman says the main limiting factor is
capacity constraint after a recent spurt of growth.
Using locally-produced sorghum and cassava rather than
pricey imported malting barley is key to this strategy as is the
increasing use of keg beers rather than bottled ones and
encouraging traditional cloudy sorghum-made Chibuku beer.
Although sorghum and cassava is around 60 percent the price
of malting barley, there still needs to be a cut in excise tax
to reduce the price of these beers significantly which has seen
them sell well in Uganda, Kenya and Mozambique.
SABMiller's Tanzania managing director Robin Goetzsche says
tax breaks are key to producing more affordable beer as only 17
percent of a bottle of beer is the liquid inside, with the rest
accounted for by packaging, marketing, distribution and tax.
In 2004, SABMiller introduced its first sorghum beer Eagle
in Uganda which now accounts for half of its 55 percent market
share, and with major competitor Diageo also seeing
success, around half of Uganda's beer is sorghum-based.
In the East African nation, the sorghum beer enjoys half the
excise tax of barley-made beers, and so with lower production
costs and tax its Eagle beer sells at 70 percent of the level of
mainstream beers such as Nile Special and Club Pilsner.
"We need to get the price down to 80 percent of mainstream
to get a big kick in demand," Goetzsche said.
The strategy has not worked as well in Tanzania as the
nation has a more moderate excise tax regime and the cut for
sorghum-based Eagle was only to 75 percent that of barley beers,
and so only allowed Eagle to be priced at 88 percent of its
mainstream national beers brands Kilimanjaro and Safari.
This was not sufficient to boost demand and Goetzsche says
the brand which accounts for around 5 percent of the group sales
has seen a volume decline of 12 percent, in a country where
SABMiller expects its overall beer volumes to rise 17 percent in
the year to end-March 2012.
This has been offset by the success of its mainstream beers
and the recent launch of Castle Lite, and he is expecting annual
earnings up 15 percent in SABMiller's biggest market in its
Africa region where its market share has risen to 73 percent.
While sorghum has been used in Uganda and Tanzania, and by
Diageo in Kenya to replace barley as a source of starch, further
south in Mozambique, SABMiller is using the staple root crop
cassava with encouraging results over the last few months.
Its first cassava beer, named Impala, was launched in late
October and within just over 2 months had taken 1.7 percent of
Mozambique's beer market and has boosted output at SABMiller's
third and newest brewery at Nampula in the north of the country.
SABMiller's Mozambique managing director Grant Liversage
says the group negotiated with the government to pay a quarter
of the excise tax for its beer, and is planning that cassava
beer will soon make up a third of production at Nampula which
would see its national market share rise above 5 percent in a
market where the brewer has an overall share of over 90 percent.
The use of cassava and the tax break allows the beer to be
priced at 70 percent of mainstream beer brands like 2M and
Manica and its success has encouraged him to believe that the
beer brand could replace its barley-based economy brand.
The cassava crop is processed by a mobile operating unit
close to the growing crops and transported to the brewery where
it makes up 70 percent of the starch requirement for brewing
with the other 30 percent coming from malting barley.
"There is a huge cassava crop in Mozambique, and cassava
growth and some barley development will be our major initiatives
for the coming year," Liversage said.