Is Africa the next big beverage alcohol market?

Africa is home to 16% of the world’s population but consumes just 5% of the world’s beverage alcohol. That low per capita consumption translates into considerable potential. A hot climate might be expected to exaggerate the demand for beer and big brewers are investing for the future.

The IWSR’s figures showed that the market for alcoholic drinks in Africa slowed to a little over 1% last year. The performance was handicapped by the poor wine harvests in South Africa and Europe, which pushed up wine prices by 14%, and adverse economic conditions in a number of markets.

Despite the sluggish growth last year, the market has still registered growth of nearly 8% between 2014 and 2018 and global drinks players continue to invest. They are looking at Africa increasingly in terms of opportunity, not risk. Forecasts from the IWSR show the region’s alcoholic drinks market will grow by 12% in volume and 15% value by 2023.

Global drinks players are looking at Africa increasingly in terms of opportunity, not risk.

For brewers, the opportunity to dramatically increase their beer footprint in Africa was a factor in AB InBev’s decision to purchase SABMiller in 2016. The brewer continues to invest and a new 2mhl brewery is set to open later this year in Mozambique, where the IWSR reports the beer market has increased by almost 30% in the last five years. The company has also announced the construction of a new site in Tanzania where beer volumes have jumped by 21% in the same five years. Nigeria in particular is seen as a ‘hidden jewel’ by AB InBev and this has justified a new $250m brewery which came on stream last year. Nigeria has seen a rise in beer sales of nearly a third in the same five-year period.

Heineken has also recently opened a brewery in Mozambique and began local production of the flagship Heineken brand in Rwanda in 2018. It also expanded its capacity in Ethiopia. AB InBev’s increased activities in Nigeria have prompted Heineken to give its Nigerian operations an overhaul to finetune its efficiency.

For Heineken, Africa is also helping to realise its aspiration to build its cider volumes out of its core UK market and it is working, with the Strongbow brand outperforming expectations and winning an audience in South Africa last year. The IWSR reports that cider in Africa has grown by 22% between 2014 and 2018.

The expansion in beer production in Africa is predicted to help fuel a 12% rise in beer volumes by 2023.

The expansion in beer production in Africa is predicted to help fuel a 12% rise in beer volumes by 2023. Heineken’s focus on cider will be rewarded with a surge in cider sales of 20%, albeit from a low base.

The longstanding popularity of Guinness has given Diageo a head start on some of its competitors. The first Guinness brewery in Africa opened as long ago as the early 1960s in Nigeria, but the brand had been bottled locally through agreements for many years before then. Today Diageo operates 12 breweries in the region, with a further brewery underway in Kenya. Africa currently makes up 12% of Diageo’s revenue.

Diageo’s progress in Africa is underpinned by a broad price range of brands which cater for a wide range of incomes. The illicit spirits segment retains a strong presence in Africa and the only effective way to compete is to offer products priced to enable consumers the chance to upgrade to a safe and well-marketed branded alternative. It is a strategy that is bearing fruit. Evidence for the shift away from illicit spirits can be seen in the 10% growth that the spirits category has registered between 2014 and 2018.

IWSR Africa analyst Daniel Mettyear sees opportunities in the African spirits market as “encouraging consumers to upgrade from the low-priced, low-grade products in the homebrew space to reasonably priced but well-packaged and slickly marketed brands in the visible trade”.

Pernod Ricard has considerably outperformed the market for spirits in Africa in 2018, a reward for having elevated the region to priority status and making it its ‘new frontier’. The company has widened its presence to 13 markets in Africa in recent years. Pernod Ricard has identified ecommerce as an important vehicle for reaching the rising affluent consumer as shown by its investment at the end of 2018 to become a strategic shareholder in online platform Jumia.

The attention that Africa is receiving from the major spirits players is expected to bear dividends, with the IWSR projecting a jump in spirits volume and value of more than a fifth to 2023. There will be variances by market and Mettyear believes that you cannot look at Africa as one entity. “Africa is a vast space and needs to be assessed on a regional or national level to best exploit the opportunities.”

The continent remains a volatile trading environment, with currency fluctuations, political upheaval and fragile economic development making it a challenging place to do business. However, the global drinks players have recognised the opportunities that exist and have shown a willingness to be patient and to invest because they know that the bigger prize is ahead.