Africa: The Next Big Thing For The Alcohol Industry
An emerging and thirsty middle class has made Africa one of the most lucrative markets for the wine and spirits industry, as the market has been expanding at five times the global average, in 24 sub-Saharan African countries, according to IWSR, a British wine consultancy. Furthermore, saturated beer markets across North America and Europe have resulted in breweries rushing to set themselves up in the rewarding, yet risky, markets in Africa.
Rising Consumer Demographics Are The Backbone Of Growth
According to U.N. statistics, Africa is set to account for a fifth of the global population by 2025, surpassing the 1.5 billion mark. Moreover, the continent possesses the largest working age population in the world. [1] An increase in the proportion of the working age population, relative to the total population, is potentially beneficial for consumer spending. Countries in sub-Saharan Africa are also experiencing significant rates of urbanization, with the U.N. forecasting the urbanization rate to reach 45.9% by 2030.
An increasing level of disposable income will be to the advantage of liquor companies, as moving into the middle class allows consumers to go for more quality. For example, consumers will start shifting from unbranded beers to branded ones. Ultimately, with a further increase in income, there will be a shift towards products that are viewed as more sophisticated, such as brandy, whiskey, and wine. With the entry of international brands, a sharp uptake of mobile phones, and an increasing internet penetration, there has been a greater exposure to the Western culture, and social media has played a great role in shaping the tastes of younger consumers.
Infrastructure And Political Challenges Remain
Regardless of the appealing growth potential, a number of risks and challenges abound in the region. Lack of infrastructure is a decisive bottleneck for investment in the continent. Away from major urban centers, distribution is a highly costly undertaking, due to an absence of large-scale grocery stores. This is demonstrated in the preference for fortified wines and home-brewed liquor among the population. High transport costs and import tariffs further increase costs, as there is a need to source goods from overseas. To make matters worse, the transport infrastructure is very poor across Africa, further exacerbated by problems in keeping products chilled to the right temperature. Corruption and complicated customs procedures have also played a part in dampening the sector’s expansion. In the northern part of the continent, for example, in countries such as Morocco and Algeria, there is a high level of abstention from alcohol. In these regions, Muslims make up nearly all of the population.
African Beer Market- Poised For Success
The scope for growth in the beer market is enormous in the continent, as long as the companies are able to persuade the consumers to drink more beer. While Africans drink nine liters of beer per head per year, the global average is 45. With an increase in disposable incomes, the rate of beer consumption is set to grow significantly. The informal market, which poses a health risk to consumers, dwarfs the formal alcohol market in Africa, as it is considerably cheaper. African alcohol consumption is, in fact, in line with the global average of 6.2 liters of pure alcohol per person per year. Hence, the potential to convert drinkers from the informal market is extensive. Companies such as SABMiller are developing new affordable brands like Chibuku Super and Impala in order to win a share from the informal market. By having local origins, SABMiller is also trying to tap the local pride and associate drinking their beer with patriotism in order to enhance their sales, establishing a target of 10% annual growth over the next 3-5 years. In some countries such as Mozambique and Uganda, beer consumption has doubled since 2000 and has grown 60-70% in places including Tanzania and Zambia. [2]
African markets are extremely consolidated and four brewers — SABMiller, Heineken, Castel, and Diageo — hold 90% of the market. Among these, premium brands witnessed growth rates much higher than other beers, an average annual growth rate of almost 12% between 2008 and 2013, compared to 6% for mainstream beer and 6% for African beer overall. [3]
Africa’s Growing Taste For Wine And Spirits
The growth figures for the wine and spirits market look very promising. Africans drank 864 million bottles of still light wine in 2013, an increase of 17.3% over 5 years. Moreover, spirits sales are climbing at an even faster rate than wine — 13% between 2010 and 2014, compared with 3% for wine — led by whiskey and followed by brandy and cognac. The market for wines and spirits has been forecast to grow a further 11% by 2018, with a growing middle class and changing consumer tastes and preferences. [4] Sommelier master classes, which offer amateurs tips on how to appreciate fine wine, are becoming progressively more popular in several African countries.
Diageo, the world’s largest spirits company, has launched a range of inexpensive liquor, such as Jebel Gold whiskey, to gain a foothold in the market. A number of international spirits companies are expanding across Africa, using this strategy of launching low price versions of big name brands. Partnerships with independent distillers and producing their own adaptation to local spirits are also common. By investing more than $1 billion in Africa over the past five years, Diageo has been able to control over 25% of the legal spirits sales in the continent, having captured almost double the share of its nearest competitor, Distell.
A number of innovative tactics have been employed by companies such as offering products in smaller packages to make them more affordable, advertisements on radios known as slum radios to target the lowest rungs, and providing branded mugs and tablecloths to bars in poor areas. In Ghana and Nigeria, herbs, which are considered as necessary for good health, are added to products. Diageo is also using motorbikes instead of trucks to transport liquor to communities located in the remote regions of Kenya. In Ghana, the company opened a mobile distillery, instead of spending vast amounts building a new, full production distillery. In this way, once an area reaches its capacity of a particular brand, the distillery can be packed up and moved to a new location. [5]
Nigeria and South Africa are seen as markets with the highest potential for growth, followed by Angola, Cameroon, Ethiopia, Kenya, Ivory Coast, and Gabon. Profits may not come easy in Africa, however. In the long term, while companies will be able to upsell African drinkers to pricier brands, selling lower-priced alcohol will dent profitability in the short term.
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