Multinational beer companies are taking advantage of government incentives and using local cassava to produce low-cost brews targeted at Ghana’s growing consumer base. The population’s rising incomes and low penetration rates attracted global breweries over the last decade, and consumption of traditional malt beer is growing. But the new cassava beers offer a cheaper entry point for the bottom of the pyramid, which represents a huge potential market. Gregory Metcalf, the managing director of UK-headquartered brewing and beverage company SABM iller’s Ghana subsidiary, told OBG, “Cassava beer can attract the lower-income consumer who can’t afford hops and malt.”
POTENTIAL MARKET: The beer market is growing across the continent, with sales rising in 2012 by 10%, excluding South Africa, Reuters reported. Ghana’s consumption stands at five litres per person per year, much lower than the African average of 10 litres per person per year, Metcalf said. The majority of the market is served by home brews. According to Metcalf, an increase to seven litres would make production profitable. Because of the challenges associated with importing beer, beverage companies rely on local production. SABM iller, the world’s second-largest brewing company, initially invested in Ghana in 1997 and has since expanded its operations to four bottling plants distributing 10 brands. Diageo, the world’s largest brewery, began producing locally in 2004 through the joint venture Guinness Ghana Breweries. While producing locally, breweries have traditionally imported hops and barley, paying government excise taxes on raw materials. In 2010 the government increased the duty from 25% to 50%, forcing firms to raise the price of beer. Consumption dropped below five litres per person per year and has only recently returned to pre-2010 levels, according to Accra Brewery (ABL), SABM iller’s local unit. Brewers face the same business challenges as other consumer industries operating locally. The unreliable water supply has hit Guinness hard over the years, and during the most recent crisis, the firm shifted some production to Nigeria. Power issues also pose their own set of problems, but the biggest challenge in Ghana is “the somewhat unpredictable tax structure”, Metcalf told OBG.
LOCAL INPUTS: After taxes increased on imported raw materials, the beer industry worked with the government to reduce the excise tax to 10% on beer that uses locally produced inputs. Across Africa, breweries had already found success substituting local sorghum or cassava for malt. Given the limited capacity of Ghanaian agribusiness, securing cassava, which spoils quickly, for industrial use is not easy. Guinness purchases preprocessed cassava root. ABL partnered with The Dutch Agricultural Development and Trading Company, which travels to small farms with a mobile processing unit. The company buys directly from farmers, processes cassava on the spot and sells in bulk to ABL.
It is cheaper to use imported malt rather than local ingredients, but the new excise legislation means lower prices can be offered to consumers if local ingredients are used. Guinness Ghana Breweries produced Ghana’s first cassava beer, Ruut Extra Premium, in December 2012, and in March of 2013 ABL launched its cassava-based Eagle brand. While a malt beer sells for about GHS2.50 ($1.29), Ruut and Eagle go for about GHS1.60 ($0.82) and GHS1.20 ($0.62), respectively. Guinness has already announced a 61% increase in earnings in Ghana over the nine months leading up to March 2013. ABL predicts sales of its cassava beer will be in line with its success in Uganda, where 70% of the beer market is now dominated by local brews.
UP-MARKET POTENTIAL: While beer made using local content offers a cheaper entry point for lower-income Ghanaians, breweries are also targeting Ghana’s highend consumers. ABL’s imported Peroni brand sells at a premium, but is performing better per capita in Ghana than elsewhere in Africa. Without clear income statistics to go by, Metcalf sees these sales as a good sign of future potential. “I think the middle class in Ghana is bigger than in most African countries,” Metcalf said.
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