NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, August 4, 2015

NAIROBI, Kenya—For 20 years, Leonard Odhiambo has run a thriving business off a dirt path in Kibera, the biggest slum in sub-Saharan Africa. He brews changa’a, a potent spirit made from molasses and mashed grain. A half-liter bottle sells for just over a dollar.

Changa’a is illegal, but the police aren’t his biggest threat these days. Diageo PLC, the world’s largest spirits company, is selling inexpensive liquor barely a hundred yards from his door. The cheapest, a whiskey called Jebel Gold, costs about 10 cents for a 30-milliliter “tot”—about two-thirds of a shot.

Mr. Odhiambo says he is losing customers to the nearby liquor shack, which also offers non-Diageo branded products such as Napoleon Gold Brandy and King Horse Vodka. “They sell cheaper than they used to,” he says.

International spirits companies are expanding across Africa, targeting even the poorest consumers with liquor made locally and sold at dirt-cheap prices. In major cities and, increasingly, in rural areas as well, the world’s biggest liquor makers are launching low-price versions of big-name brands, forming partnerships with independent distillers and creating their own versions of local spirits.

Africa has emerged as a rare bright spot for London-based Diageo, which said Thursday that operating profit for the fiscal year ended June 30 fell 0.8% on weaker sales in North America, the Asia-Pacific region, Latin America and the Caribbean. In Africa, discounting the effect of acquisitions and currency fluctuations, sales rose 6%. Earlier this week, Diageo moved to wield more control over its growing business in South Africa, terminating a joint venture with Heineken NV.