Ethiopia: The battle of the brewers

Ethiopia looks primed to catch up, with demand for beer already expanding by 15% per annum. Demand for drink – and processed foods – is growing rapidly in places like Ethiopia due to rising incomes, favourable demographics and behavioural changes linked to urbanisation.

Ethiopia’s economy is set to expand by between 6% and 8% over the next few years, according to the IMF. It has a huge population size (second largest in Africa, 14th largest in the world) and a very young demographic (44% of the population is under 15 and 73% is under 30) and one that is starting to have discretionary spending power, which are all favourable figures when viewed from the consumer goods space.

The result has been multinational beverage companies extensively reforming their corporate structure and operations to maximise opportunities for expansion across developing countries.

Diageo has doubled its investments in emerging markets since 2007 through acquisitions and mergers. And although Diageo isn’t new to Africa – it first exported Guinness to Sierra Leone in 1862 and it has well established business ties to Kenya – there remains plenty of unchartered territory.

‘Competition is stiff and if others know our production volume that could give them an advantage. So many new investors are comin, breweries are expanding, their building capacity – it makes it tough’

“For the rest of East Africa, we are just starting,” says Andy Fennell, Diageo’s president and chief operations officer in Africa. “Our strategy is to build local brands and then supplement them with our international global brands.”

In addition to the Meta Abo Brewery acquisition, Diageo has bought Serengeti Breweries in Tanzania.

Consolidate and expand

When Diageo acquired Meta Abo Brewery in 2012, there were only five distribution points in Addis Ababa that were so small they almost didn’t warrant their claimed status, says Francis Agbonlahor, managing director of Meta Abo Brewery.

In 2012, only 38% of the bars in the city stocked Meta beer, with the Ethiopian capital representing a significant 40% of Ethiopia’s beer market. Although Agbonlahor declined to give precise current market share figures, he pointed out that Meta beer can now be found in 98% of the city’s bars and, as a result, the brand’s market share is well in the ascendant from 15% in 2012.

There’s less caginess when it comes to discussing who represents the main competition. BGI’s longevity in Ethiopia – during most of which it was the only privately owned business, alongside state-owned companies – has given it a clear and big head start.

It currently controls about 50% of the market, helped in no small part by its main brand being the hugely popular and bestselling St George lager. Meta beer used to have the Number 1 spot – and those at Diageo want it back, and think they can get it back, as well as gaining 50% market share.

Obstacles to achieving that include problems that are typical of any developing country and not particular to Ethiopia, such as lack of availability of foreign exchange to buy raw materials, and long-lead times for logistics and customs clearance,
Agbonlahor says. Though there are some challenges that are more Ethiopia-centric.

“The whole private sector is in its infancy,” Agbonlahor says. “Hence it doesn’t always have the talent availability found it other African countries.”

Another big problem is power supply. Currently Meta’s main brewery has to run on generator power 15 hours a day. The company applied for a direct power supply that it would finance but is still waiting after a year.

On the flip side, positives in Ethiopia include economic and political stability, especially in the form of the government’s five-year Growth and Transformation Plan – one of a sequence of five-year plans that aim to turn Ethiopia into a middle-income country by 2025 – that is “being implemented to the letter,” Agbonlahor says. “There aren’t many governments in Africa who could do that.”

Government efficiency and willingness to work with the private sector were also evident in the tender process for Meta Abo Brewery, which was transparent, objective and well managed, Agbonlahor says.