With barley beer priced out of reach and homebrewed banana beer sending people to the hospital, SABMiller is testing a new ingredient for its African alcohol: sorghum.
The giant global beermaker and its subsidiary, Nile Breweries, see an opportunity to expand their business while potentially halving the price of mainstream beer. Thanks to their tweaked recipes and Africa's abundant natural sorghum resource, prices are already falling fast.
A CNN Money article explains that the average American consumes 77 liters of beer annually. In Africa, not including South Africa, the average person only consumes about 7 liters. Because of this, SABMiller sees cheap sorghum beer as an opportunity to "crack a virgin market." Although sorghum is usually used for syrup and cattle feed in countries like Uganda, Tanzania and Zambia, SABMiller's Nile Breweries developed a beer recipe in 2002. CNN explains that by building high-tech microbreweries and micro supply chains sourcing local ingredients, SABMiller stabilizes the price of beer by reducing dependence on international imports, creating a more self-sustained and cheaper market for Africa. The new product is priced 20 percent less than imported barley beer.
This inexpensive yet high-quality beer is becoming popular very fast—nearly 35 percent of all beer in Uganda is now Nile's Eagle sorghum beer, which CNN reported is also sold in Tanzania, Zambia, Zimbabwe and Swaziland. In 2008, Heineken and Diageo followed suit with a sorghum recipe for Ghana, Sierra Leone and Cameroon. Multinationals are racing into an untouched market.
Not only does the recreated sorghum recipe help boost profit for major beer companies, it sustains Africa's economy. According to a study by French business school INSEAD, Nile Breweries added about $92 million to the Ugandan economy and supported roughly 44,000 Ugandans through agricultural, manufacturing, retailing or distribution jobs in 2007. SABMiller is sending a share of this revenue to subsistence farmers at the bottom of its value chain.
"Our affordability model is attractive because it focuses on local crops and creates additional income for farmers and a new profit pool for us without cannibalizing our core product," says Andy Wales, head of Sustainable Development at SABMiller.
As CNN explains, SABMiller's idea of using local ingredients to tap new markets follows that of Coke and Danone. Africa will contain seven of the world's 10 fastest-growing economies by 2015, CNN says, and roughly 200 million Africans will enter the consumer goods market by 2016. Multinationals, such as Coke, Danone and now SABMiller, see vast opportunities in the very near future.
Not everyone thinks SABMiller's tactics will make a mark in Africa's economy. "Africa is still mom-and-pop," said Don Elefson, a fund manager for the Harding Loevner Frontier Emerging Markets Fund, explaining that multinationals will still remain "on the sidelines." But with SABMiller's next steps of using cassava-based beer in Mozambique and Southern Sudan, seeding a Tanzanian barley industry and creating better processors to preserve products while distributing, the company may be on a fast track to meet its long-term goal of halving the price of beer in Africa and tapping a huge new market.