Scott Anderson

Weekly Roundup – The BoP Beer Business

“Beer is proof that god loves us and wants us to be happy,” is a quote that’s attributed to Ben Franklin, although he might not have put it exactly that way.

A more accurate, and more relevant quote for this particular post, comes from experimental rock artist Frank Zappa:

“… you can’t be a Real Country unless you have A BEER and an airline—it helps if you have some kind of a football team, or some nuclear weapons, but at the very least you need A BEER),” he wrote in the book The Real Frank Zappa. (A hat tip to How We Made it in Africa on that quote).

SABMiller, already a dominant brand in Africa, wants to sell more beer to Africans, wants to source much more agricultural inputs from African farmers, and wants to generate much, much more revenue in Africa. The company with global beer labels such as Pilsner Urquell, Miller Lite and Grolsch forecasts it will grow revenue by 10 percent over the next three to five years in Africa.

To achieve that goal it will use differentiated pricing to attract low-income customers across Africa. Differentiated pricing, also known less favorably in some circles as “price discrimination,” is something pharmaceutical companies have been experimenting with to improve overall sales in a variety of countries across sub-Saharan Africa. The thinking is because different countries have very different income levels and therefore different abilities to pay, a single price will lock out certain customers and hurt volumes overall. (It’s a key attribute of market dynamics, and was explained in a recent post here, with a counter-point here and is mentioned throughout in NextBillion’s recent e-book on market dynamics).

According to a report in This Is Africa, SABMiller has already implemented differentiated pricing in one of its key markets, South Africa, and “low pricing regimes are expected to be applied in approximately 70 percent of SABMiller’s African markets.” The company operates in 38 markets in the continent.

SABMiller Africa Managing Director Mark Bowman also told the publication the company’s focus is on generating sales and boosting efficiency, and it isn’t obsessing about the margins.

“I would say on an annual basis if we were neutral to slightly positive in terms of margins we would be happy – so the emphasis has moved away from the margin,” he said.

Differential pricing may also help SABMiller better compete on pricing, not only with established brewers, but perhaps with its biggest African rivals: informal alcohol producers – i.e. unregulated home brewers and distillers churning out cheap products.

“Consumer access to affordable, formal alcohol and developing brands that tap into local pride and unlock the aspirations of the growing middle class who are seeking more premium brands will be the key drivers of top-line growth for our business across Africa,” Bowman said at an investor seminar this week in London, according to a Wall Street Journal story.

There are a few subtle notes of patriotism infused into SABMiller’s strategy as well (which may appeal to Zappa’s sensibilities on beer and national identity). The brewer hopes to build sales of more local brands like Impala, which is brewed from cassava, Chibuku, made from corn and sorghum, and Eagle Lager, a beer brewed with sorghum in Uganda.

We’ve chronicled some of the company’s efforts in local sourcing in past NB articles such as this one. And just last month, Heineken subsidiary Nigerian Breweries Plc signed a partnership with Psaltry International Company Ltd and IFDC (the International Fertilizer Development Center) to source cassava locally. The partnership is the result of the 2S project, under which more than 550 farmers have been trained in improving yields that have led to 32,000 tons of cassava roots being supplied to Psaltry’s processing plant, according to the BoP Innovation Center, one of the partners in 2SCALEcale.

What’s not to like about all of this? Farmers have benefited from having a steady customer in SABMiller, the company is employing more people in Africa, and quality control and health safety for their beer is undoubtedly better than in the unregulated homebrewer market. But like a frothy mug with too much foam, drawbacks are bubbling up.

As a separate Wall Street Journal article reports, many African farmers are ditching traditional food crops in favor of more sorghum and cassava in pursuit of beer customers. This has led to scarcity in food staples and increased prices as a result. According to the report:

“Until 2011, Uganda was the largest supplier of corn and beans to the U.N. World Food Program in sub-Saharan Africa after South Africa. But over the past four years, Uganda’s food sales to the World Food Program, the largest buyer of locally produced grains and cereals, have dwindled.

“And soaring demand for crops like yam and cassava for use in beer production is driving prices higher across Africa. Last year, sorghum prices were up to 80 percent from a five-year average in East Africa, while cassava prices rose more than 33 percent in Central Africa, according to Famine Early Warning Systems Network, a U.S.-government funded research group.”

In the same story, multinational brewers maintain that in exchange for beer ingredients farmers are provided credit to buy seeds, pesticides and fertilizers.

“The farmer has no commitment whatsoever to sell,” Anna Swaithes, SABMiller’s head of livelihoods, land and food security told the paper.

Beer sourcing and beer pricing at the BoP certainly is a complex brew.

Scott Anderson is the managing editor of NextBillion.

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