The African alcohol market is beckoning for South African beverage firms after a new report predicted on Friday that the east African spirits and brandy market could grow by as much as 30 percent in the next 10 years.
Brewers with exposure to Africa are also expected to capitalise on the expected growth of the beer market.
Renaissance Capital said in its Friday report that the spirits and wine business in east Africa, which currently accounted for about 20 percent of revenues for listed brewers in the region, was expected to surge in the next 10 years and contribute up to 50 percent of volumes for beer companies.
This now presents vast opportunities for South African and other international liquor companies that make spirits and brandy, especially in the light of the sluggishness that has been predicted for the South African market.
Distell managing director Richard Rushton said last month that the trade outlook for the South African market “remains challenging”.
Last year, the value of the South African spirits and brandy industry was estimated at about R3.5 billion and Rushton said his wine and brandy company had “ambitious plans” to venture into the rest of Africa, where opportunities were arising.
Analysts at Renaissance Capital cemented this view, saying in their latest report that “the spirits market has significant room for growth” in east Africa compared with other regions such as west Africa, where the “spirits business is not part of the listed” brewing businesses.
Diageo has already said that it was seeking to boost revenues from its spirit business in the east African region while Distell has bought into KWA Holding East Africa Limited (Kheal), which manufactures and distributes spirits in the region. Kheal is a valuable investment for Distell as it gives it access to markets in Rwanda and Uganda through distribution centres and duty-free outlets.
“East African alcohol producers have faced more setbacks than their west African peers because of regulatory uncertainty, security threats, poor climate conditions, and an even more squeezed consumer,” Renaissance Capital’s report said.
An earlier report, “Beer on the Frontier: Opportunities for Brewers in Africa”, released in March by Rabobank, said a lot of investment had been channelled into brewing capacity in Africa, which would be the fastest-growing beer market in the next five years, an opportunity also aided by the expected boom in population.
Nigeria is the largest beer market by volume on the continent followed by South Africa, while Kenya and Ghana are the third- and fourth-biggest markets, respectively.
Per capita consumption of spirits is, however, minimal for some west African markets. Nigerian consumers drink about 300ml of spirits a year, earlier figures released by Renaissance for 2013 showed.
This, however, leaves room for growth for the spirits market in the region, with the research company adding that margins for the spirits segment were more lucrative than in the lager section.
“From a low base, we believe growth rates of close to 20 percent a year are feasible in the short to medium term,” Omair Ansari, the sub-Saharan Africa breweries analyst at Renaissance Capital, was quoted as saying earlier this month.
, we believe the sector has turned a corner, and on a visit to Kenya and Tanzania we found that management teams are better equipped to deal with these hurdles and lessen the impact on their businesses,” the latest Renaissance Capital report added.
Business Report reported last month that African operations at Distell had achieved a 20 percent rise in revenue for the year to June, and contributed 49.6 percent to the group’s total revenue.
“This was despite several disruptions of trade-intensified competition from the major global players and a stepped-up presence of cheap Indian imports, as well as the imposition of high import duties in several countries,” Rushton said at the time.
The Renaissance Capital analysts added that they did “not believe the market is pricing in the strong volume growth opportunity in beverages in east Africa, especially with regard to the significant potential in the spirits sector”.
The spirits market had registered triple-digit growth rates in some segments in the past few years, the report said.
An increase in consumer spending on alcoholic beverages has been predicted for Kenya, while the beer market for Uganda “has grown significantly since 2008, rising to 3.34 million hectolitres in 2013, from 1.7 million hectolitres”, the Rabobank report said.
“The low consumption per capita for Tanzania and Uganda implies that there is the potential for a significant earnings lift, in our view.”