Drink More Please: Changing Demographics Of African Alcohol Consumers

By Kurt Davis Jr. AFKI Original Published: August 25, 2016, 1:07 pm
changing demographics of African alcoholTanzanian wines. Photo: Ludovic Pollet/thedrinksbusiness.com

Investors were watching when Tanzania Breweries Limited, owned by SABMiller, released a new brand of wine in the Dodoma Wine Range.

The wine — Dodoma Rose — gets its name from the Dodoma region, the second largest grape producing area in sub-Saharan Africa that you never heard of.

Dodoma Rose represents the gains made in Tanzanian grape farming, said Wine Brand Manager Warda Kimaro. Speaking at the launch, he invited the audience to “taste the difference.”

It is different and it’s getting the attention of investors. The launch is a growing testament to the African rising middle class and its growing taste for wine and spirits.

Demographics and consumers

Two demographic statistics underline the change in the African wine and spirits. One, Africa is expected to account for a fifth of the global population by 2025, with its greatest gains in sub-Saharan Africa. Two, urbanization in Africa could approach 45 percent by 2025. This means that from 2015 to 2025, there’ll be 40 percent-plus population growth in cities such as Dar es Salaam, Nairobi, Addis Ababa, and Kinshasa. Lagos is slightly behind with around 25-percent population growth expected in the city.

Although the demographics speak to the potential of a growing consumer base, it is the working age of the population and the increasing disposable income in their pockets that excite investors.

After-work teas are becoming after-work beers and glasses of wine. And, as the amount of extra change increases in the pockets of sub-Saharan Africans, consumers are demanding better quality of wine and spirits – both imported (Johnnie Walker) and locally made — like Dodoma.

Drink more please

“Drink more please” — it’s not the best parenting line but it is the thinking (albeit off the record) of many top executives at wine and spirit companies operating on the continent.

Sub-Saharan Africans drink 10-to-11 liters of beer per person per year. Comparatively, Asians drink about 19-to-20 liters and Americans drink about 73-to-74 liters of beer per person per year. Only South Africans drink more than the global average — around 46 liters.

The beer market is expected to grow significantly. East African countries such as Mozambique and Uganda have already seen 100-percent-plus growth in the last 15 years. Tanzania and Zambia have seen north of 60 percent. The four largest brewers – Castel, Diageo, Heineken, and SAB Miller – have (and should continue) to benefit with 90 percent of the brewery market.

Spirits are a different story. Executives speak of an informal market that, when added to the formal market, suggests Africans consume around the global average of six-to-seven liters of pure alcohol per person per year. Executives consequently speak about making an effort to convert consumers from informal to formal markets. Companies focus efforts on building local brands that are affordable and tap local pride. The spirits market, as a result, has nearly grown 15 percent between 2010 and 2015.

Diageo, the world’s largest spirits company, launched a range of inexpensive liquor such as Jebel Gold, to complement its higher quality liquors such as Johnnie Walker.

Partnering with independent distillers to produce both the low- and high quality brands in one place is all too commonplace. Diageo itself has invested more than $1 billion in Africa during the past 5 years to capture 25 percent of the formal (legal) spirits market on the continent.

The company uses motorbikes to transport spirits to communities in remote parts of Kenya and opened a mobile distillery in Ghana. To spur interest in Ghana and Nigeria, the company has altered its formula to include herbs that are locally considered as great for health. Diageo is effectively trumpeting the spirits market with its pocket book and exhibiting an energy very new to the continent.

Changing demographics of African alcohol

The wine market is also growing, but at a slower rate. International companies have moved rather slowly into this market. Local firms such as TBL Group in Tanzania have targeted this subsector with great energy. Local wines are significant players in East African countries such as Ethiopia, Tanzania, and Uganda.

All these opportunities do not come without challenges. Although Diageo overcame some physical infrastructure issues, the distribution network is not always obvious. An absence of large grocery store chains or major urban centers stall sales growth. High transport costs and tariffs counter efforts to offer inexpensive options to a wider section of the potential consumer base.

Diageo and the other brewers are examples of the creativity necessary to open a burgeoning consumer market. Producers have barely tapped the surface.

Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.

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