E-Malt.com News article: Ethiopia: Heineken should beware of Ethiopia’s fragile political system

If companies head to emerging markets to fuel top-line growth, many of them have the so-called BRIC countries in mind. By contrast, Dutch Brewer Heineken said on May, 5 it is about to buy two state-owned breweries in Ethiopia for a total of $163 million, The Wall Street Journal reports.

The fast growing and profitable Ethiopian market is a good pick for Heineken, which sees sales flat in mature markets. Ethiopian beer consumption has grown by around 20% a year for the past five years with the average annual consumption of beer around 3 litres per person at present. With a global annual average beer consumption of 27 litres per person, there is ample opportunity to get the Ethiopians to drink more beer.

The flipside of Ethiopia however is its fragile political system. The country’s political stability is currently rated at D by the Economist Intelligence Unit, with E being most risky. And the nation’s first ever multiparty elections were held just a decade ago.

That a brewer is not immune to political turmoil in a country can be illustrated by Heineken’s Egyptian operations. The brewer was forced to shut down its operations for two consecutive weeks during the unrest in January, hurting first quarter volumes.

To be fair, Heineken has long been criticized by the market for its over-exposure to the low growth Western European market where it generates around a third of its operational profit, hence expansion in the fast growing and profitable African market is most welcome to boost its earnings.

But a move into the rapidly expanding Asian market may be a safer bet. On May 4, Heineken’s peer AB InBev reported that its premium brands, such as Budweiser, grew over 7% in the first quarter in China. Heineken has hardly any presence in China, but aims to opens its own brewery there during the summer where it will make its premium brand Heineken. In the hope, of course, that it will refresh the parts other beers cannot reach.


06 May, 2011