Grima Fatuli (left) head of the Filling & Packaging Division at Harar Brewery and part of the old guard with around 10 years of service, now works with Federico Agressi (right) supply chain manager, part of the new Heineken management team.
Heineken NV is to invest a total of around 700 million Br in the two local breweries it has acquired, Bedele and Harar, by the end of 2013, in addition to opening a new brewery closer to the central market, which is Addis Abeba.
The company is in the process of acquiring 25ht of land near the capital for the brewery, according to Johan Doyer, general manager of Heineken in Ethiopia. The move aims to increase the brewer’s capacity and gain access to the central market to raise revenues.
The idea for an additional brewery was initially planned to be constructed near Harer by the management of Harrar Brewery, prior to the arrival of Heineken. Once Heineken came into the scene it took over the idea and decided to construct it nearer to the Capital, according to Juneydi Basha, general manager of Harar Beer and a veteran in the company since its inception in 1983.
For Harar Brewery, which will get around 350 million Br from Heineken, investments have already been planned for a 69 million Br water treatment plant as well as brewing tanks totalling 13.4 million Br. The Brewery, located on the outskirts of Harer City, 526km east of the capital, was established in 1983 and features products like Harar Sofi, Hakim Stout, and Harar Beer and draught.
Holding a 10.5pc share in the local beer market, largely dominated by BGI Ethiopia, the company plans to increase its annual production to 420,000hl, from its current 300,000hl, according to Juneydi. The brewery that Heineken plans to open near the capital will manufacture Harar, Bedele, Heineken, and possibly another Dutch brand, Amstel, according to Doyer.
Heineken, the third largest international beer company, with around 140 breweries in more than seventy countries, entered the local beer market after acquiring Harar and Bedele breweries in 2011, at a cost of 78.1 million dollars and 85.2 million dollars, respectively. It was the second foreign company to enter the local beer market, after BGI acquired St George Beer in 1998 for 10 million dollars.
Heineken would have had a near monopoly of the formerly state owned beers, had not its bid of 188 million dollars for Meta Abo Beer Factory, the last remaining in the government’s hands, been beaten by Diageo. The latter, a London-based liquor giant known for its Guinness beer and Johnnie Walker Whiskey brands, offered the winning bid of 225 million Br for the brewery.
In moving towards the capital market, Heineken will face competition from the likes of French BGI, the country’s largest brewer, which has a 47.5pc market share; Dashen the only local beer in the market, with 19pc of the market share; and Diageo, which currently holds 15pc of the market share. Heineken has made a wise move, according to a marketing expert who has conducted research on the beer market in Ethiopia.
“Because beer does not have bulky raw materials, moving the production site nearer to the market will cut transportation costs and make the brewer more competitive,” he told Fortune.
In addition, as an international brand, Heineken is making a move to have a noticeable presence in the capital because that is where most foreigners living in or visiting Ethiopia are located, the expert explained. Amidst the stiff competition, market leader BGI says that its long presence in Ethiopia and Africa will help maintain its profitability in the country.
“Although the other companies entering locally may have a larger presence internationally, we have the advantage in Africa and Ethiopia, due to our long presence and strong investments,” Sieyes Hadera, BGI marketing manager in Ethiopia, told Fortune.
“Other international companies have spent money on the African market before, but we still have a dominant presence, and it will be the same in Ethiopia,” he concluded.
Companies entering the beer market are aware of the stiff competition coming from international beer companies.
While Raya Beer, which plans to establish a brewery near Maichew, Tigray Regional State, sold 25pc of its shares to BGI, Habesha Beer, which plans to open breweries in Debre Brehan and Menagesha has sold 35pc of its shares to an undisclosed European company, which it believes will give it a competitive edge.
“In terms of Ethiopia’s recent, fast economic growth, the potential beer market in Ethiopia is untapped, so we believe that the market can handle everybody,” Eskinder Desta, promoter of Habesha Brewery told Fortune.
Ethiopia’s per capita annual consumption of beer is five litres, according to research by Access Capital in 2009. Compared to other African countries, like Kenya, whose consumption is 12 litres, and South Africa, whose consumption is 59 liters, the amount is very low, according to the research.
The strategy for Habesha will be to have a niche market based on promoting a quality product, according to Eskinder.