E-Malt.com News article: Africa: SABMiller counting on local crops to expand in Africa

SABMiller plc is counting on cassava and other local crops such as sorghum to expand in Africa, where it estimates homebrews or cheap spirits account for some three-quarters of all alcohol consumed, Bloomberg reported on May, 16.

Brewers in recent years have increasingly emphasized high-end brands to boost margins by getting drinkers to spend more on each beer they consume. While SABMiller’s cassava-based Eagle beer is far from a premium product, it represents a similar strategy because for the majority of Africa’s population the beer is an indulgence that costs more than twice what homebrews do.

Emerging markets are key for brewers. The three biggest are based in Western Europe where austerity and a prolonged economic slump have cut into consumption. SABMiller, which traces its roots to South Africa, gets more of its sales outside of Europe and North America than the others, which has helped keep its estimated price-earnings ratio at the highest of its peer group.

Shares of London-based SABMiller have rallied about 60 percent since November 2011, when it launched its first cassava-based beer, Impala, in Mozambique. Impala now accounts for more than 5 percent of Cerveceria de Mocambique’s volume.

“There is a lot of opportunity in Africa, but you want to be the first one in the market and entrench yourself as the dominant player,” said De Wet Schutte, an analyst with Avior Research Pty Ltd. in Cape Town. “SABMiller has been largely successful in doing that.”

Ghana, where the economy is set to grow 7.7 percent this year, charges an excise tax of 47.5 percent for beers that have less than 30 percent local content. For brews with more domestic ingredients -- provided by the cassava in Eagle -- the excise tax drops to 10 percent. SABMiller says the profit margin on Eagle is about the same as its other beers.

“These lower-priced beers make sense,” said Wynand Van Zyl, a Macquarie Group Svc analyst in Johannesburg, who rates SABMiller outperform. “It’s very important for international brewers to demonstrate commitment to the local economy.”

Cassava, a tuber grown widely across Africa, is a staple food in many countries. While barley doesn’t do well in the tropical climate, cassava is so easy to grow that Ghana and Mozambique have a surplus.

The crop hadn’t previously been used in beer because it starts to degrade within 24 hours of harvesting. SABMiller uses a portable machine that does initial processing of the roots, allowing them to be stored for weeks.

SABMiller, which sells 46 local brands across Africa, will spend about $300 million to $500 million a year on the continent outside of South Africa, building more breweries and bottling facilities, according to regional managing director Mark Bowman. In Uganda and Zimbabwe, the company already produces Eagle beer made from sorghum.

“These beers are a clear way to reach a market that wants to drink beer but can’t afford to,” Bowman said in an interview at the company’s African headquarters in Johannesburg.

17 May, 2013