The tough economic times in Kenya have led to an increase in consumption of illicit alcohol, East African Breweries Limited now says, as mainstream players lose their market share.
This has hit earnings in the industry with the government missing out on potential revenue from the alcoholic and beverages industry, one of the main sources in the manufacturing sector.
According to the regional operator, illicit alcohol now constitutes up to 56 per cent of consumption in the market.
“The consumer's income has become more depressed leading to a rise in consumption of illicit alcohol, which now constitutes over 50 per cent of the market. The government needs to get tougher to protect the consumers.” Group CEO Jane Karuku said on Friday.
Revenue loss
Kenya is estimated to lose an average of Sh71 billion in taxes annually as a result of the proliferation of the sale of illicit alcohol in the country, a study by Euromonitor Consulting, released in June, indicates.
The survey was commissioned by the Alcoholic Beverages Association of Kenya (ABAK), on the impact of illicit alcohol on the Kenyan economy.
The report also reveals that the volume of illicit alcohol sales has recorded strong growth in value since 2020 to stand at Sh 67 billion, reflecting its wider distribution and increased preference, especially in low-income settlements.
The popularity of illicit alcoholic beverages which are often sold at a lower price than legal drinks, has been fuelled by the non-compliance with tax and excise regulations.
The low price of illicit drinks, high taxes, costly raw materials to produce safe alcohol, as well as easy accessibility through street vendors, licensed liquor shops, grocery retailers, bars, and other hospitality outlets, has been cited as one of the reasons why illicit alcohol has become more affordable.
The main target for counterfeiting is the mass-market, high-volume brands that comprise a mix of mid-market and premium spirit brands followed by high-quality cider and beer.
This trend has hit the likes of EABL, which saw net profit for the year ended June 30 drop by 21 per cent amid stagnated sales.
The brewer has reported a Sh109 billion in net sales for the full year ended June 30, 2023, a similar revenue performance compared to prior year.
EABL’s Group volumes were down seven percent year-on-year, as sales were impacted by sluggish consumer spending as effects of the tough macro-economic environment and regulatory disruptions took a toll on depletions.
EAC market
Net sales in Kenya declined four per cent with excise tax escalation impacting the price-sensitive mainstream segment.
The trading environment in Kenya also impacted performance, particularly trade distractions leading to county-led bar closures.
However, the premium spirits segment proved resilient, registering double-digit growth.
Uganda continued its encouraging half-year growth trajectory, closing at 17 percent growth aided by pricing benefits and modest volume growth, the Nairobi Securities Exchange listed firm said.
Tanzania registered modest growth of one percent as the market continues to adjust to price increases taken earlier in the year.
“EABL delivered net profit of Sh12 billion, a 21 percent decline, on the back of rising input costs, multiple excise tax increases and currency depreciation which could not be fully offset by increased prices and cost management initiatives,” management said.
The EABL Board has recommended a final dividend of Sh75 per share, bringing the total dividend for the year to Sh5.50 per share.
“EABL remained resilient despite the macroeconomic headwinds - including global inflation and geopolitical disruptions - which disproportionately raised our costs and depressed consumer spending across the year,” Karuku said.
EABL continued to reap from smart investment behind brands, digital and consumer experiences, investing Sh12.9 billion in capital expenditure during the year.
The company’s Environmental, Social and Governance (ESG) plan to promote positive drinking, champion inclusion and diversity and pioneer grain-to glass sustainability continued apace, with significant investments behind strategic sustainability initiatives across East Africa.
“Together with the relentless dedication of our teams, I expect that we will continue to deliver topline growth, sustained profitability and consistent cash flow generation, ” Karuku said.
Even so, the firm continues to face challenges characterised by inflation-driven cost escalation, EABL chairman Martin Oduor-Otieno said, mainly fuelled by continued geopolitical tensions.
The call by EABL to streamline the alcoholic drinks market comes even as the country’s tax regime continues to encourage illicit trade, according to industry players, where Kenya has the highest taxes compared to her East Africa peers.
According to Retail Trade Association of Kenya (Retrak), repeated tax increases on alcohol, for example, have created a situation whereby nearly half, about 44 per cent of the alcohol consumed in Kenya is illicit.
Stop Crime Kenya (StoCK) which has a secretariat at the Consumers Federation of Kenya (Cofek), says increasing fees for excise stamps by up to 317 per cent is another gift for criminals involved in illicit trade.
This, it said is also a setback for consumers already battling with record prices.
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