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Kenya’s EABL bets on canned beer to beat new rules

Kenya's East African Breweries is investing in a beer canning line to tap a growing market of consumers who drink at home after the country introduced tough new restrictions on sale of alcohol in bars, its chief executive said.

Nearly a year ago, the east African nation enacted the alcohol control act, cutting operating hours for bars and nightspots, curbing the previously unrestricted sale of alcohol in outlets like supermarkets and imposing heavy fines for offenders.

Consumers responded by starting to purchase alcohol for use at home to beat the restrictions, which many analysts expected to hurt sales for EABL, the biggest company in the region by market value.

"What we have discovered is the growth in traffic into supermarkets by people wanting to buy and take their drinks home so we are introducing cans effective next year in March," Seni Adetu told Reuters.

Although the brewer sells selected brands in cans, they are only available in 340 millilitre quantities as opposed to 500 millilitres for bottles. Adetu said all brands would be produced in cans of 500 millilitres, without disclosing the amount that would be invested in the packaging line.

EABL, which is controlled by Diageo Plc, sells spirits like Johnnie Walker whisky and leads in the beer market with brands such as Tusker and Pilsner.

COMPLEX MANOEUVRE

EABL took a loan from Diageo to purchase back a 20 percent stake in its subsidiary Kenya Breweries Limited from Diageo's rival SABMiller, following its decision last year to terminate a partnership with SABMiller in Tanzania.
During that complex manoeuvre designed to give it a larger share of the fast-growing market, EABL bought a controlling stake in a small Tanzanian brewer called Serengeti and offered its 20 percent stake in SABMiller's Tanzania Breweries Limited to the public.

Adetu said the buyback of the shares in Kenya Breweries Limited had been completed without stating the value of the deal that some analysts had been expecting to be funded through a cash call.

The company also operates in Uganda and exports products to Rwanda, Burundi and South Sudan. It expects those markets to grow faster than Kenya, reducing the home market's contribution to the firm's future earnings, Adetu said.

It plans to increase sales of spirits in the region, Adetu said, adding that spirits offered better margins than beer.

"We have got such a big opportunity in spirits everywhere in the region, we haven't really scratched the surface of the opportunity. The only way for spirits is up," he said.

Sales of spirits in Kenya grew during the firm's financial year ended last June, thanks to consumption by upper and middle income segments, but the firm wants to drive sales in its other markets.

Adetu said that rising competition in Kenya from smaller brewers and imports of beers like Heineken did not pose a huge challenge to the market.

"We haven't seen a material impact on our business but we are conscious of the need to protect our brands from an investment standpoint to ensure we do not lose market share to the competition," he said.

29 Nov. 2011

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