Gin revolution gets EABL high on profits

Gin contributed five per cent of Diageo’s reported net sales in the period between July and December 2021. [Courtesy]

The Gin revolution in Africa was driven by the prodigious consumption of Gilbey’s in Kenya.

This is according to Diageo, a London-based multinational brewer that owns the majority stake in East African Breweries Ltd (EABL), in its interim results for the first six months ending December 2021.

Gin contributed five per cent of Diageo’s reported net sales in the period between July and December 2021 as its sales grew 21 per cent in the review period.

Made from Juniper berries, Gilbey’s is a type of gin that has a slightly piney flavour with a touch of both fruitiness and pepperiness.

It became the tipple of choice for many Kenyans during the pandemic, a period in which pubs and clubs had been closed.

The growing popularity of the drink has resulted in the Gin Revolution around the world.

Unlike whiskey, Gilbey’s is friendly on the pocket, a major selling point to price-sensitive Kenyan consumers. For instance, a 750ml bottle goes for around Sh1,250 at a liquor store.

John Musunga, the Managing Director of Kenya Breweries Ltd, a subsidiary of EABL, noted that gin consumption has peaked around the world.

“Consumers will choose what works for them, and this time around it is gin,” he said.  

EABL’s profits more than doubled in the first six months to Sh8.7 billion even as the brewer announced an interim dividend of Sh3.74 per share.

The performance is compared to a profit after tax of Sh3.8 billion that the brewer made in the first half of 2020, a period when alcohol sales were ravaged by the negative effects of the Covid-19 pandemic, including the closure of bars and a dusk-to-dawn curfew.

Kenyans, says EABL Managing Director Jane Karuku, drink for social reasons. [Courtesy]

The company’s share price at the Nairobi Securities Exchange (NSE) jumped by 7.4 per cent to trade at Sh167 by the close of trading on Friday.

Mainstream spirits, a category under which Gilbey’s falls, grew 25 per cent in the period under review, while the premium spirits grew by a fifth.

Indeed, imports of brandy, gin, whiskey and rum increased by 45 per cent at the height of the Covid-19 pandemic, according to official data. This is the highest jump in seven years. 

Data from the Kenya National Bureau of Statistics (KNBS) shows the quantity of imported hard liquor jumped to 16.3 million litres in 2020, compared to 11.2 million litres of spirits that Kenyans brought into the country from overseas in the previous year. 

This was at a time when the purchasing power of a lot of Kenyans was eroded by the negative effects of the Covid-19 pandemic, with millions of people losing their livelihoods. 

This period also saw the highest jump in imports of spirits since 2013 when there was an increase of 72 per cent in hard liquor purchased from outside the country. 

Increased importation of expensive hard liquor reflects not only the changing consumer tastes and preferences among imbibers as their purchasing power has gone up but also a dramatic shift in drinking habits during the pandemic period characterised by economic hardships.

Beer consumption has, however, made a comeback following the end of the dusk-to-dawn curfew and pubs and clubs being allowed to operate into the wee hours. Beer sales went up by 17 per cent in the review period.

But the biggest jump in sales was recorded in Senator Keg, which grew 49 per cent over the period.  

Unlike bottled beer, which could be delivered to consumers’ homes, Senator beer is served in transparent plastic cups.

Kenyans, said EABL Managing Director Jane Karuku, drink for social reasons. As such, in-trade sales are more likely to bounce back after a period when most people have been drinking from home.

“There will be no significant shift as we move into the future,” said Karuku at a press briefing following the release of the company’s half-year results.

The taxman also benefited from this growth, with Kenya Revenue Authority (KRA) raking in more from indirect taxes such as excise duty and the 16 per cent value-added tax (VAT) as well as direct taxes like corporate income tax. 

EABL Managing Director Jane Karuku. [Courtesy]

Indirect taxes grew to Sh41.9 billion from Sh33.7 billion. Direct taxes, on the other hand, more than doubled from Sh2 billion to Sh4.1 billion. 

Ms Karuku, however, warned that the trading environment remains uncertain, with the lingering socio-economic impact of the pandemic, excise tax volatility, and the upcoming electioneering period. 

“However, we are cautiously optimistic that the regional economies will continue on the recovery path, sustaining growth momentum across East Africa,” she said.

KRA collected an increased Sh15.7 billion from wines and spirits in the financial year 2019-2020 compared to Sh13.6 billion in the previous fiscal year.

This even as excise duty from beers reduced by more than a third from Sh27.8 billion to Sh19.1 billion.

“The decrease in excise revenue from beer could be attributed to the closure of bars and other entertainment joints owing to the Covid-19 restrictions, while that of financial transactions was as a result of waivers in some transactional costs,” read part of the Economic Survey, which showed that close to 738,000 jobs were lost last year, even as the size of the economy contracted by 0.3 per cent.  

Revenues from excise duty levied on wines and spirits increased by a blistering 726 per cent between 2011 and 2020, official data shows. 

In 2011, the taxman only collected Sh2.16 billion from wines and spirits, but this shot up to Sh15.7 billion by the end of 2020. 

However, excise duty on beer has increased by only 32.2 per cent from Sh14.45 billion in the financial year ending June 2011 to Sh19.11 billion in June 2020. 

Excise duty collected from wines and spirits in the financial year ending June 2020 was a drop of more than a third from the Sh27.8 billion that the taxman got in the previous fiscal year.