August 10, 2018
The beer market is at a turning point in Ethiopia. Its value has grown dramatically, reaching USD620 million over the years, while consumption grew by 16 per cent yearly, as studies shows.
While annual production hit as high as 7 million hectolitres, the number of breweries has almost doubled. Consumers have seemingly dozens of choices to quench their thirst for invented beers with an emphasis on flavor and technique.
This has brought about many changes, from rethinking the marketing strategy and resource management in the retail trenches to mushrooming of products and services by the breweries to simplify, innovate and improve their operations.
Its sustained success and the changing demographics of brewery ownership have recently led to acquisitions and big transactions involving billions worth of investments. The occasional ‘big announcement’ that some brewery was being acquired by another, has become increasingly common in Ethiopia nowadays.
And, noticeably, the entrance of small brewers into the industry and the rising popularity of their products have pushed one of the mega brewers, BGI Ethiopia, to innovate new ways of raising its production volumes.
Its latest move was an attempt to fully acquire Raya Brewery, a late entrant to the industry, for 7,425 Birr (269 dollars) a share- seven times the par value. It was during a general assembly held at Mekelle, 797.4km from Addis Ababa, that BGI disclosed its intention to Raya’s shareholders, who had not received a penny from their stake since the establishment of the company.
“i was always insecure about my investment before the unanticipated moves of bgi,” said teklit tsegaye, who bought 15,000 birr (543 dollars) worth of shares from raya and accepted the offer of bgi to sell its shares for around 111, 000 birr (4,000 dollars).
Initiated eight years ago by its 58 founding shareholders such as Tsadikan G. Tensay (Lt. Gen.), a former chief of staff of the Ethiopian army, and Ambachew Abraha, a former chief of the Ethiopian Shipping Lines (ESL), Raya commenced operation in 2014. Later they were joined by individuals like Teklit and other shareholders, along with influential investors such as Dawit G. Egziabher.
Apart from these individuals, BGI Ethiopia, another brewery, with brands such as St George, Castel, Amber and lately the new Panache Lemon beers, bought a 30 per cent share in 2011. It took more than three years to realize the much anticipated brewery with a cost of a billion Birr in Bohera Mountain- south of Maichew Town- 667km from the capital.
But, against their expectations, all these efforts have not bore much fruit. In its three years of operations, the company has struggled to break even, which meant that shareholders did not earn any dividends. Nevertheless, behind the failures, there were also some success stories.
Raya, with a major focus in the northern part of the country, was able to triple its sales, while the losses of the company surged by 32 million Birr (1.1 million dollars) to 104 million Birr (3.6 million dollars). Even more, it doubled its production capacity to 600,000 hectoliters. Such achievements inspired big players such as BGI in the brewery industry to invest more in the company.
To fully acquire Raya, BGI agreed to pay 4.45 billion Birr (161 million dollars) for the 25 per cent shares owned by Dawit Gebregziabher and 28 per cent stake invested by the remaining shareholders.
Such an attempt is rare and one of the biggest in the nation’s history of acquisition. “For us to grow bigger, acquiring other companies entails lower cost when compared to building a new plant, besides helping us to have a bigger customer base in a shorter period of time in areas where we encounter a gap in supply,” Esayas Hadera, marketing manager of BGI, said.
Being the brewery and beverage production wing of Castel Group, BGI is the first private and foreign player to join the beer market. It was towards the end of 1997 that the company was established as BGI Ethiopia PLC owing to the liberalization policy of the government. BGI was the pioneer, erecting the first privately owned brewery by acquiring 47ha of land and started producing brands such Bati and Castel beers. The move, at that moment, gave it leverage to control the market in the northern parts of the country.
A year later, it bought the iconic St. George Brewery for $10 million and invested a billion Br investment on renovation, modernization and expansion of the plant. Afterwards, the Brewery inaugurated its third and largest brewery in Hawassa by 2011. This, along with recent expansion projects, raised the company’s production capacity to almost 3.6 million hectoliters a year.
The arrival of Heineken back in 2011 did not stop BGI from investing more in the industry. It bought 25 per cent of Raya’s brewery and later increased its stake to 47 per cent, aiming to conquer the northern market. After losing the title of being the largest brewer in the nation to Heineken, whose capacity stands at four million hectoliters of beer annually, fully acquired in an offer unanimously accepted even by Zafu Eyesuswork, vice chairperson of the brewery.
“It might take more than half a century to get such a return for shareholders,” said Zafu, who agreed to sell his shares to BGI.
Not only that, Castel Group, a parent company of BGI Ethiopia, is also attempting to take over the full ownership of Zebidar Brewery, the youngest player in the industry.
The major shareholder of the latter, Cipari SA, a holding company of Unibra, have already reached a consensus to transfer its stake to Castel. Unibra , being one of the founders of the SKOL Beer brand, the fifth largest selling beer globally, has exclusive rights on the SKOL brands in Africa, where it is sold in 11 countries.
It owns 60 per cent of the Zebidar brewery and its local partner, Jemar Hulugeb Industry S.C, holds the remainder. Although the amount of the buyout has not been announced by both BGI and Unibra, it is no less than the one offered to buy the shares of Raya, as sources disclosed to BGI.
The acquisition will allow BGI to own Zebidar’s plant sprawled on 150,000square meters plot of land and has an annual production capacity of 350,000 hectoliters. “The transaction, however, is subject to the approval of the Trade Competition & Consumers Protection Authority (TCCPA),” said Gavin Brown while declining to comment on the issue, noting that it is still in its infancy.
Contrary to Raya and Zebidar, Habesha, another newcomer in the industry, does not seem to be convinced by the recent attempts of BGI. Identified as one of the fastest growing beer companies in Ethiopia, Habesha has recently become a highly recognized brand in the Ethiopian Beer market. The company, which claims to have 13 per cent market share as of last year, has a capacity of producing 750,000 hectoliters of beer a year in its 7.5ha plant situated at Debre Berhan, 130km from Addis Abeba.
“habesha breweries, unlike the incorrect rumors spreading, is not up for sale,” said ameriti lemma, communications manager of the company. “it is rather growing and planning to reach and connect with every ethiopian, strengthening the vision with which it has started.”
No doubt, the recent actions portray the beer industry has entered a brave new era, but it is not one that all industry players are fond of. Some insiders in the industry fear this growing normality to be an ominous trend as it might pave way to a monopoly, while others argue that the move simply implies the phasing-out of privatization and the dawn of a new stage; mergers and acquisitions.
A consultant and marketing expert, who wants to remain unnamed, in the brewery industry with over a decade of experience believes the recent acquisitions will bring competence in the industry. “BGI, through the recent acquisitions, will be able to build its market presence, while reducing competitors’ strong holds as well as achieve market synergies,” he said. “Also, it helps the industry to revive as new strategies and ideas will be born from acquisitions of companies,” he added.
Tewolde Asfaw, Chief Executive Officer of Raya Brewery, agrees, but with a different perspective. “It helps us as a means of gaining competences and resources currently not held,” said Tewolde. “Most importantly, the acquisition will benefit small companies like us by avoiding one of our biggest headache- liquidity.”
Unlike Ethiopia, acquisition is more common in the global brewery industry. Over the past five years, the appetite for mega-mergers in the industry has surprised many. The aggressive merger and acquisition policy by the now dominating brewers have dramatically changed the competition environment in the global brewing industry.
World’s top brewers including Heineken and BGI have been increasingly willing to enter into multibillion-dollar deals. It is the result of the explosive growth of the craft beer industry that upset the decades-old status quo. Their popularity pushed global industry players to buyout key brands.
Acquiring craft beer brands with renowned brands perceived advantageous because it reduces the cost incurred in research and development, according to CB insight, a New York-based research outfit that has conducted many studies and data analysis on various issues. Over the past five years, the world’s six largest brewers have made 55 acquisitions.
AB InBev, the largest brewer in the world is the leading one with 43 acquisitions and followed by its forerunner in the market, Heineken, that has made seven deals over the past five years, the same source indicates.
The trend in Africa is no different. Dominated by multinational players such as SAB Miller, Heineken and Castel Group, the beer market in Africa is projected to grow quicker than any other region over the next three years, according to a study done two years ago by Canadean, known for conducting detailed industry and consumer research for breweries. The consumption of beer is forecasted to grow by five percent annually over the same period of time.
Ethiopia, along with Kenya and Zambia, has the fastest growing markets in Africa, as Canadean findings show. Ethiopia’s alcoholic beverage industry comprises of wineries, distillers and breweries.
breweries account for 90 per cent of the revenue generated by the industry.
Heineken Beer, BGI Ethiopia and Diageo-Meta Abo Brewery are the big players in the industry in volume and revenues. The late entrants undertook expansion projects to secure their existence in the industry. Habesha is making efforts to double its capacity to 1.5 million hectoliters with an estimated cost of $43.3 million, whereas Raya is also working to increase its production by 25P per cent to 750,000 hectoliters.
This will make BGI the largest brewer of the nation by raising its capacity to 4.3 million hectoliters. Even more, if it succeeds in fully acquiring Zebidar, this will reach as high 4.6 million hectoliters. “In doing so, we will able to have all strategic spots in a bid to control the whole market in Ethiopia,” said Esayas, who is also involved in the negotiation process of the recent acquisitions.
BGI latest moves coincide with the massive expansion projects of its closest competitor- Heineken, which is currently undertaking its third phase expansion project in its plant located at Qlinto. Upon completion, the project will enable Heineken to produce five million hectoliters of beer and push its total investment in Ethiopia as high as half a billion Euros.
On the other, it is linked with the existence of challenges faced during repatriation of hard currency. The recent tough negotiation of Heineken with the government, where the latter was pushed to approve 40 million euros despite the recurrent foreign currency crunch, is a microcosm of the severity of the problem. “Such challenges might also be the reason behind the expansion of the multinational companies as the value of their cash is depreciating unless they reinvest it,” said a consultant in the brewery industry.
Bearing in mind its importance to the economy, the government has established a separate directorate in the Food & Beverage Institute five years ago. The directorate is mandated to undertake research and development projects as well as formulate strategies, policies and actions for the development of the beverage sector, including the brewery industry, whose annual turnover stands at $620 million from an estimated annual production capacity of 11 million hectoliters.
Photo by Đoàn Ngọc Thành