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Last updated: December 26, 2013 3:34 pm
Sorghum-brewed beer tastes . . . tangy. Some would say sour or fruity. But watch out. Simple varieties ferment in their packaging over about four days, reaching an alcohol by volume strength of 4 per cent. Left too long, it can get rather explosively fizzy.
Investors in African brewing will know the problem. Global brewers have rushed in recent years to roll out clearer, classier versions of the sorghum and cassava beers that are found across the region, as part of their expansion there. (African climates tend not to favour barley). SABMiller’s sorghum Chibuku Super or Diageo’s cassava Ruut Extra have to be brewed and sold relatively near where they are drunk – even if their shelf-life is longer than four days.
The companies are hoping for a different kind of explosion. African markets have (very) low per-capita drinking – Nigerians consume an average of 10 litres per year compared with the 70 litres downed by Britons – but disposable incomes are rising quickly. SABMiller still only gets 12 per cent of its earnings from Africa outside South Africa. Pricing power is also fairly high. Operating margins of 25 per cent to 30 per cent are common, despite the need to keep such beers as Ruut and Chibuku affordable to steer consumers away from homemade moonshine versions. But will the drinkers then trade up to higher-margin premium alcohol?
That is where investors should go in sober. Nigeria’s beer market grew at double the rate of its GDP in the years from 1998 to 2012, according to Nomura – but the withdrawal of fuel subsidies knocked income growth in 2013 and beer consumption may lag GDP in the future. Oligopolies in national markets (Diageo dominates Kenya; Heineken, Nigeria) also make it difficult to consolidate. It would be pricey anyway, given the premium still likely to be placed on African exposure. That suggests steady, but relatively slow future growth for the region’s brewers. Drink responsibly.
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