Industry Map: Ethiopia Alcoholic Beverages, Malt Processors Fall Short of Supplying Domestic Demand, Opening Door for Foreign Players.

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To help boost local production, the government has announced that it plans to privatize Assela Malt Factory, the country’s largest supplier, and has also encouraged outgrower schemes with companies such as Diageo’s Meta Abo Brewery and Heineken to bolster domestic supply. 

The country’s only other operational malt supplier is Gondar Malt Factory, also state-owned, which has a capacity of 16,000 tons. The remaining demand is covered by imports from primarily Germany and the Netherlands and racked up an import bill of $38 million in 2016.

Low sugarcane production has subdued growth for local distilleries.

A shortage of sugar-derived molasses has had a particular impact on the distillery sub-sector, primarily due to low sugarcane production and challenges with obtaining the appropriate processing machinery. The knock-on impact has influenced product choices, for instance, Balezaf Liquor Factory has stopped production of one of its popular liquors “Enatna Lij”. This may have an impact on negotiations for the planned privatization of the country’s largest state-owned distillery National Alcohol and Liquor Factory.

Foreign ownership is on the rise as international brands acquire their way into the market.

St. George – Ethiopia’s oldest beer – was bought by BGI Ethiopia (owned by France’s Castel Group) in 1998. Since then, foreign acquisitions have accelerated. Over the last six years Heineken, Diageo, and Bavaria have all acquired former state-owned breweries and scaled up production capacity. As a result, the top three breweries in Ethiopia are wholly owned by foreign multinationals while two of the next four largest breweries have multinationals as major shareholders.

Industry Structure

Ethiopia’s alcoholic beverage sector can be broadly broken down into three sub-sectors: breweries, wineries, and distillers. The brewery sub-sector is the largest, accounting for approximately 90% of overall revenues. Collectively, the industry employs an estimated 10,000 employees.

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Value of Ethiopian Alcoholic Beverage Industry Broken Down

 

Heineken Beer, BGI Ethiopia, and Diageo-Meta Abo Brewery are the dominant players in the industry by both production capacity and revenue. Multinationals Heineken and Diageo both entered the market on the back of local acquisitions, with Diageo taking over Meta Abo Brewery for $250 million in 2012, and Heineken
taking control of both Bdele and Harar breweries in 2011, a deal that totaled $163.4 million. Smaller players are also joining the market: Zebidar Brewery was commissioned in January 2017 on the back of a $53.2 million investment. It is a joint-venture between Belgium’s Unibra and local partner Jemar Hulugeb Industry. Kegna Beverage Share Company, an Ethiopian entity, has broken ground on a $300 million factory following the company’s launch in March 2017.

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Expansion of existing companies is also underway. Both Habesha Brewery and Raya Brewery have invested in production this year. Habesha is in the process of doubling capacity to 1.5 million hectolitres through a $43.3 million program, while Raya’s $3.2 million investment will bump production by 25% to a total 750,000 hectolitres. Investments such as these are in step with moves made by competing companies over the last four years.

Sub-Sector Sizing

Taken alone, the brewery sub-sector has an overall turnover of $620 million from an estimated annual production capacity of 11 million hectolitres.

Beer consumption in Ethiopia has seen strong growth over the last seven years, growing by 15% over the period and currently stands at 7.2 million hectoliters. The trend is set to continue with Asoko sources predicting annual growth of 12% over the next five year, placing the market firmly ahead of the African average of around
5% since 2012. Despite the significant rise in local consumption, the competitive nature of the space, in which brand loyalty is perceived as being extremely strong, has led to mixed success for participants.

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Habesha Beer, for instance, registered a net profit of $1.5 million for 2016 given that it is in peak demand at groceries, bars, and restaurants according to local sources while Raya Beer registered a second consecutive loss of $4.6 million for the same period. The latter is currently in discussion with BGI over a majority share transfer. Dashen Brewery SC has also faced difficulty gaining market share and is trying to strive by introducing new brand beers like Jano Beer and Balageru Beer. Brand loyalty has made it difficult to break into the market and win customers for newer brands despite the presence of few other players.

Value Chain

A bulk of the demand for beer comes from so-called ‘On Trade’ clients such as hotels, restaurant chains, bars, and grocery stores.

Also in this segment are Ethiopia’s recreational centers, non-governmental consumer associations managed by locally elected board members. Funds are raised by selling shares to town residents with government involvement limited to subsidies of rent and utilities for the centers. In Addis Ababa alone, Asoko estimates a weekly consumption of 590,000 liters of beer across 120 recreational centers, of which 60% is consumed as draught beer.

The remaining ‘Off Trade’ market segment is primarily made up of kiosks and informal resellers and makes up a fraction of the overall market.

Breweries typically manage their main channels of distribution, maintaining their own networks to serve ‘On Trade’ client groups, without engaging third-party distributors. However, external distribution partners are contracted to reach areas away from core distribution channels. This essentially consists of the Off Trade segment.

View the full PDF report here

Asoko Insights

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