The alcohol consumption trends sweeping East Africa
For East African Breweries Limited (EABL), the trading year ending June 2024 exposed notable shifts in alcohol consumer behaviour across East Africa, driven by changing economic conditions and evolving preferences.
According to AIB-AXYS Africa analysts, these changes manifested in varying growth rates across EABL’s product portfolio, with the “Premium” brands leading the charge.
The premium segment saw a steady 13 percent year-on-year (y/y) increase in sales, outpacing the “vibrant beer” and “mainstream spirits” categories, which grew by 12 percent and 10 percent y/y, respectively.
However, the overall picture was more complex, particularly for mainstream spirits in Kenya and Tanzania, where a decline in consumption pointed to a reprioritization of consumer spending.
According to analysts at AIB-AXYS Africa, this trend suggests that economic pressures have forced consumers to rethink their purchasing choices, favouring higher-priced brands that perhaps offer perceived value for money or status, while reducing their spending on more affordable options.
The analysts note that this shift in behaviour means that EABL’s sales growth was largely supported by stronger pricing actions rather than an increase in demand, underscoring the impact of economic constraints on consumer spending during the year.
Moreover, the period saw a pronounced shift from on-trade (bars, restaurants) to off-trade (retail) consumption, coupled with a notable rise in e-commerce sales.
These trends reflect a broader transformation in how consumers in Kenya, Uganda and Tanzania are spending on alcohol, with more people opting to purchase and consume drinks at home rather than in social settings.
This move is likely influenced by both economic factors and changes in lifestyle, as consumers seek more cost-effective ways to enjoy their favourite drinks. The significant growth in e-commerce sales further underscores the fast-evolving nature of alcohol consumption in East Africa, as digital platforms become increasingly integral to the purchasing process.
Read also: EABL profit dips 12% to Sh10Bn as consumers opt for illicit brews
“At a group level, the beer portfolio should remain the key revenue driver in the medium term while spirit prints faster growth. Overall, elevated costs will remain a challenge to the bottom line more so in the current high interest rate environment – thus a near-term concern from a profitability vantage point,” explains analysts at Standard Investment Bank, adding that the Kenyan market “will be a challenging but promising market with regulatory crosswinds posing the biggest risk.
EABL’s performance, though robust in terms of net sales growth (13.2 percent y/y to Kes124.13 billion), was tempered by several macroeconomic challenges.
During the year, Kenya emerged as the fastest-growing market with a 15 percent y/y increase in sales, followed by Uganda with 12 percent y/y growth, and Tanzania with a modest 9 percent y/y rise.
However, when adjusted for exchange rate depreciation, the growth figures were less impressive, highlighting the currency pressures faced by the region’s largest brewer.
Additionally, the cost of sales soared by 13 percent y/y to Kes70.33 billion, driven by rising costs for key inputs such as fuel, sugar, and returnable glass, as well as high taxes. These factors compressed gross margins, despite the company’s strong cash flow generation, which supported debt reduction and further capital expenditures.
Overall, EABL navigated the year with resilience, but the 11.8 percent y/y decline in net earnings to Kes10.87 billion from Kes12.32 billion in the previous year underscores the challenges posed by the shifting consumer landscape and macroeconomic headwinds.
