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Premium Beers Buoy Diageo’s Sales in Kenya as Inflation Bites

·2-min read

(Bloomberg) -- East African Breweries Ltd., the Kenyan unit of Diageo Plc, sees its more expensive beers and spirits propping up sales even as accelerating inflation in the region deters consumption of branded alcohol.

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Consumers of the company’s beers such as the century-old Tusker lager are hurting from surging fuel and food prices, and some have even switched to illicit liquor, according to EABL’s Group Managing Director and Chief Executive Officer Jane Karuku.

Rising prices in East Africa’s biggest economy coupled with an increase in excise duties has prompted EABL to raise rates for its beverages. The country’s next president -- Kenyans are voting to elect their leader Tuesday -- will need to focus on ways to reduce the cost of doing business to spur economic growth.

“We know for a fact scientifically that if you increase to a certain price point, you know there is a decline in volume,” Karuku, 60, said, referring to excise taxes. “We put this in front of government officials all the time.”

Inflation accelerated to a five-year high in July. Surging prices spurred outgoing President Uhuru Kenyatta to cap prices of corn flour -- used to make ugali, a stiff porridge and staple food for most Kenyans.

The two main presidential aspirants --Raila Odinga and William Ruto -- have also pledged to ease the cost of living in the country.

Sales of EABL’s premium brands such as WhiteCap lager, Johnnie Walker whiskey and Tanqueray Gin have remained buoyant, Karuku said.

Kenya’s laws allow the revenue office to increase the specific rate of excise duty annually to factor in inflation. The levy on alcoholic beverages was increased by as much as 20.3%, according to a June 30 note by Ernst & Young Kenya.

Diageo’s unit also remained relatively immune from the supply shock created by Russia’s invasion of Ukraine as it sources 80% of its products locally. Still, the depreciation of the shilling to a record low against the dollar has increased costs of some inputs, the CEO said.

The company, 50% owned by Diageo, plans to boost its capital expenditure this year from the 13 billion shillings ($109 million) it spent in the year ended June 30, Karuku said. EABL will spend on advertising, improving productivity and environmental, social and governance projects, she said.

“We have three million drinking-age consumers coming onto the market across East Africa,” Karuku said.

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