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"Illicit beverages a problem to beer sector"
The beer industry is one of Uganda’s largest tax contributors. However, it continues to struggle under a highly charged environment that is characterised by high cost of doing business. Photo by Godfrey Lugaaju
What you need to know:
The beer industry is by far one of Uganda’s most productive sectors of the economy. It has a large contribution in terms of tax and employment. However, in there lies a number of challenges such as the high cost of doing business, which just like many businesses, the beer industry is struggling to put up with. Eronie Kamukama spoke to Thomas Kamphuis, the Nile Breweries country director on a number of issues including industry growth, taxation and prospects.
What is the relationship between Nile Breweries and Coca-Cola?
We were part of SAB Miller and it was acquired by AB InBev so there is no more SAB Miller for us.
Our relationship now is solely with AB InBev Africa. Coca-Cola is a separate company and it has bottling agreements with bottlers in every country.
SAB Miller used to have a lot of these bottling agreements. Coca-Cola has opted not to extend those agreements to AB InBev and to find other bottling partners. So we nolonger have any relationship with Coca-Cola at the moment.
What is the current consumer strata for beer vis-à-vis your products?
We have built a relationship that cuts across all classes of people. For instance, we have products such as Eagle Lager, which is mostly consumed by people in agricultural and rural communities.
We have also got products such as Club that are mostly consumed by urban communities and high profile products such as Castle Lite that are rapidly growing at the moment.
What is your performance like given the current economic fundamentals?
Surprisingly, we have registered some growth. For instance, in the year ended December 31, 2017, our volumes grew by 25 per cent. This definitely means we registered some good growth in terms of profitability.
However, we have also had challenges of increasing cost of doing business, which has substantially cut into our profit margins.
In 2013, you ventured into the low cost beer or what is technically called opaque beer. How have you been performing in that direction?
For years, we had put emphasis on investing in clear beer products. And indeed we have tried to reach a lot of consumers using that direction.
However, some of our products such as Eagle Lager have not had substantial penetration in the local brew bar even when there is enough room for improvement.
In far rural areas, we struggle to get our products on a consistent basis and the price compliance is usually out of line with Kampala’s because there is much more competition here than there.
In rural areas, you have got traders who take advantage of some products and the pricing will be too high for the people in that area.
So if we can develop a way to market to such areas that will be great success.
Also, women have been generally disenfranchised in that category because communication has not appealed to them.
It is pretty much talking to men. Also the environment where people consume our products has not been very friendly to women in terms of safety and hygiene.
There is need for a lot of improvement because 50 per cent of the population are women.
Other spaces in the market are like the fruit wines that are not taxed and so will be affordable. If you are to grow volumes, it would be a category to potentially explore.
In the 2018/19 tax adjustments, government wants to enforce withholding tax on persons engaged in supply of agricultural products at 1 per cent. Will this have any affect your outreach programmes with farmers?
I am not fully aware of the details of that but if it is a tax on inputs, then ultimately, for the farmers we very often provide the inputs to, it will be far more expensive. But we want to continue selling beer so it is very hard to find alternatives.
What is your projection of the beer industry?
The African beer market is the most exciting in the world. There are a lot of new consumers coming in every year and they will continue in the foreseeable future.
The per capita consumption of clear beer is 10 litres per year. If you compare that to markets such as Europe, it could be over 60 litres per year.
If we are able to make people move away from illicit beverages and start consuming beer which has low alcohol products which is under the best quality circumstances, we will be able to grow our volumes.
So if you can double your per capita consumption and you add a million people a year, it would be a struggle to keep up with the demand.
