Diageo Kenya Mulls East African Expansion as Growth Jumps

Diageo Plc’s Kenyan unit plans to expand operations in South Sudan and other nations in East Africa to capitalize on accelerating economic growth in the region, Chief Executive Officer Charles Ireland said.

East African Breweries Ltd., the region’s biggest beer maker, is considering growing its distribution infrastructure in South Sudan, Ireland said in a Nov. 7 interview in the Kenyan capital, Nairobi, where the company is based. Last month the company commissioned a depot in South Sudan’s capital, Juba, with the capacity to store 100,000 crates of beer.

“We are looking to migrate from trading to fully operational business units” in South Sudan, Rwanda and eastern Democratic Republic of Congo, he said.

EABL, as the company is known, controls 95 percent of the Kenyan beer market and half of the country’s spirits business, according to Ireland. The company has manufacturing plants in Kenya, Uganda and Tanzania and exports its products to Rwanda, the Democratic Republic of Congo and South Sudan. SABMiller Plc, the world’s second-largest brewer, operates the only brewery currently in South Sudan.

Growth in Kenya, the region’s largest economy, will accelerate to 5.8 percent this year from 4.7 percent last year, according to the International Monetary Fund. South Sudan, the world’s newest nation that gained independence from Sudan in 2011, is expected to expand 32.1 percent after contracting 53 percent last year, the IMF said on its website.

South Sudan’s economy shrank when it shut down crude oil output in a dispute with neighboring Sudan over pipeline fees. Output resumed earlier this year.

EABL has embarked on a campaign to boost the share of revenue from its spirits business, where growth is already outpacing the increase in beer sales, Ireland said.

‘Growth Spurt’

“Over the last few years the beer business has been healthy and growing,” Ireland said. “Our spirits business, particularly the premiums and international side, has been growing more rapidly and we expect that will continue whilst the country is going through a growth spurt.”

Revenue at EABL increased 6.5 percent to 59.1 billion shillings ($689 million) in the fiscal year through June. Spirits contributed at least 16 percent of sales.

“As economies develop consumers become aware of international brands, they become aware of mainstream and premiums offerings,” he said. “Alcoholic beverages in Kenya are coming through a similar development cycle.”

Johnnie Walker

The biggest selling spirits in Kenya by sales volumes are derived from sugar cane and include Kenya Cane, while premium brands such as Johnnie Walker whiskey are recording the fastest growth, according to Ireland. The company’s most popular beer brand, Tusker, accounts for a fifth of sales volumes, he said.

Annual growth in sales of premium spirits is expected to be in “low triple digits” over the next three to five years, while beer will grow in the range of “single digits,” Ireland said.

EABL’s shares have gained 21 percent this year following a 54 percent advance in 2012, giving the company a market value of 253 billion shillings, the second-biggest in Kenya. The stock declined 0.3 percent to 320 shillings by the 3 p.m. close in Nairobi. The FTSE-NSE 25 Index has surged 37 percent in 2013, according to data compiled by Bloomberg.

Diageo, the world’s largest distiller, owns 50.03 percent of EABL.

Before it's here, it's on the Bloomberg Terminal.