Whisky in Africa

A variety of elements are combining to make African countries exciting prospects for whisky producers. Hamish Smith investigates

AFRICA IS NOT A COUNTRY AND IS NOT A MARKET. Africa is a continent of a billion people that by 2050 will become nearer two and a half billion. It is a populace spread between 54 countries that stretch 7,000km north to south and east to west. What happens in the medinas of Morocco does not happen among the Nigerian billionaires of Victoria Island, or indeed a few kilometres north into the Lagos slums. To succeed in the last of the developing continents, spirits companies must forget about Africa’s whole and explore its parts. 

If we are to find a commonality, it is in the continent’s ascension to the internet age. In 10 years the web has illuminated Africa’s darkest corners, exposing its consumers to worldwide trends. Figures from The Ecomomist suggest 59% of Nigerians and 68% of Kenyans own mobile phones. With the worldwide web in one hand, it’s no wonder status spirits such as Hennessey and Johnnie Walker have found their way into the other. 

Henry Carew, CEO of the Overlands Partnership, has spent his career advising drinks groups on strategy in Africa. “Africa’s strong urbanisation trends, combined with the relatively lower penetration of international brands, offers strong opportunities,” he says. “By 2030 an additional 300 million people will flood Africa’s ‘consumption cities’.”

But that’s where the generalities end for Carew. “While sharing some similarities African countries have very different consumer landscapes. A deep understanding of the local consumer needs to be acquired and strategies tailored to their needs. 

“A business choosing to invest in Africa needs to decide where to invest. There can be a temptation to prioritise those where the cost of entry is lower than in the countries where the large competitors are already well established. But it is worth remembering that fishermen usually recommend to ‘fish where the fish are’. However, those considering investment might well bear in mind the risk environment.” 

Where there are fish there are fishermen and in the most important African markets Diageo and Pernod Ricard are the giant trawlers. Diageo established its presence through a Guinness brewery in Nigeria in the sixties but its business interests didn’t stop at the black stuff. 

Where the right conditions for trading are met in a country – growing GDP
and per capita wealth, an emerging middle class, relative security, infrastructure improvements and improved route to market – Diageo is there.

Whisky is the most popular category in Africa and scotch is the most popular whisky. Diageo estimates it sells more than 70% of all the scotch in its African markets and dominates the ‘international premium’ segment in Nigeria, South Africa, Ethiopia, Angola, Cameroon, Ghana, Kenya, Tanzania and Uganda. At its Africa conference late last year, a group spokesman said Diageo plans to “extend its footprint” in Ethiopia, Angola and Mozambique.

The premium ladder in most African markets starts at the lower rungs and differs from country to country but broadly speaking it runs from value to mainstream to premium to super-premium. At the value segment, it is mainly local brands but Pernod Ricard might change all that. The group will test its Indian whisky brands in Africa soon, with Nigeria and Kenya the most likely destinations. “We plan on producing Imperial Blue locally in Africa. This will allow us to test the waters and we will take a decision on Royal Stag at a later date,” Sumeet Lamba, executive director at Pernod Ricard India told The Times of India in June. 

Mainstream normally falls under $10, which is where Diageo’s Black & White and Pernod’s Passport operate. Johnnie Walker Red and Black, Bells and J&B are Diageo’s premium brands ($12-$24) while Pernod’s Ballantines comes in at around $15. The super-premium Jonnie Walker Blue and Chivas Regal are more aimed at urban consumers of higher wealth.

Pernod Ricard’s six key markets are Ghana, Angola, Kenya, Namibia, Nigeria and Morocco, where it has in-market presence under the auspices of its Sub-Saharan Africa division. CEO of Chivas Brothers Laurent Lacassagne sees Africa as a “mosaic” that requires tailored strategies and a long-term approach, in the same way Asia did some years ago. “The political environment is more fragile in many African markets but the development will take less time than in Asia 20 years ago because, in this digital time, the rhythm of development is quicker,” he says.  

Premiumisation is key globally and Africa is no different. “It’s a pyramid – the market is developing and we observe the trend towards premiumisation but it could be that it happens at a different speed,” says Lacassagne. 

“Passport attracts consumers and achieves critical mass, whereas Ballantine’s Finest is premium and our strategic brand for developing markets. We see that the development of our markets is closely linked to increases in GDP but we also look for an appreciation for consumer goods and an ability to access brands [financially].” 

Entering markets where Diageo or Pernod are dug-in may mean much of the educational donkey work is done, but the fight will be that bit harder. “Diageo is very strong in Africa – it invests a lot in its Johnnie Walker brand, “ says Aurélie Prat, brand manager at La Martiniquais’ Label 5. 

The brand has a “similar” taste profile to Johnnie Walker Red but operates a little lower down the premium scale to compete with Passport, White Horse and Grants.  But price points are only part of the strategy for Label 5. We can’t just work on price position – we have strong market plans and have invested a lot in media [advertising],” says Prat. 

But let’s narrow the field. Three of the top four whisky markets in Africa are South Africa, Nigeria and Kenya – which neatly act as compass points of Sub-Saharan Africa. South Africa represented 5.2m cases of whisky in 2013, according to Euromonitor International, and is expected to grow 30% between 2013 and 2018. 

Nigeria to the west is the continent’s second largest whisky market and stood at 0.6m cases in 2013, growing at 40%. Kenya, to the east, saw sales of 0.2m cases, growing at 62%, making it the fourth likely destination for whisky last year, behind Egypt, the sales of which are influenced by tourism. These figures don’t quite tell the whole story as the informal market, which is not trackable, is somewhat significant in Africa. Opportunity and demand is certainly greater than the figures would have us believe. 

South Africa 

South Africa is Africa’s largest whisky market by a factor of 10 and, according to the Scotch Whisky Association’s Rosemary Gallagher, it has long been the scotch industry’s star market. “Last year it was the sixth largest [global] market by value with exports reaching £163 million, up 1% on the previous year,” she says. 

All the economic excitement clings to Nigeria, but according to Distell’s Caroline Snyman, head of luxury brands at Distell, South Africa still holds great appeal. “While Angola, Namibia and Nigeria are the fastest-growing countries in Africa in terms of wealth per capita, according to a recent report by New World Wealth South Africans are ranked as the wealthiest individuals on the continent. The major global scotch whisky brands are present but so are many domestic brands eager to capitalise on the growing consumer disposable income.”

According to Marco Di Ciacca, senior brand manager for Burn Stewart, now part of Distell, the challenge for whisky brands is to convert black consumer groups from the traditional brandy to the more aspirational scotch brands. “Twenty years ago we would have targeted white male consumers but now it is just male consumers,” he says. “South Africa is the one market that is mature and immature at the same time.”

Diageo has successfully blurred the race-category lines with Johnnie Walker. The group has a joint venture with Brandhouse in South Africa, which also offer beers from Heineken and Namibia Breweries. 

According to a presentation in Diageo’s recent Africa Conference, beer enabled the group “to accelerate” its “sales force rollout into the main market landscape” which “benefited spirits”. 

The company’s spirits performance has seen an 11% CAGR over 2005-2013 and it is the number one whisky supplier in the market. Here Johnnie Walker Red is the main player and has seen 60% growth over the past three years thanks to the country’s “emerging middle class” and the brand’s “achieving scale in the attractive trade-up segments”. 

Though a hub of the south, “South Africa is no longer the single point of entry into the rest of Africa,” says Distell’s Snyman. “Many of the multinational producers are engaging with targeted African nations directly, given the ongoing improvement in infrastructure in many of these countries which is facilitating the transportation of goods. 

“These producers are also working closely with some of the major retail groups, which have established themselves in these markets and which are themselves investing in infrastructure to bring their goods to consumers.”

Nigeria and West Africa

The case for Nigeria’s emergence as Africa’s powerhouse of consumerism is compelling, despite a backdrop of deep religious fault lines and current terrorist factions. By 2050 it is forecast to be the third most populated country in the world, overtaking the US, according to the UN. 

And, while South Africa’s GDP is $421bn (2012) and expected to rise to $1,560bn in 2050, Nigeria’s GDP will grow from $538bn (2012) to $5,960bn during the period (figures from Diageo/ Renaissance Capital). 

Fuelling this growth is the word’s most popular fuel, oil, which Nigeria has by the barrel-load (trillions actually). “With a population of 170 million and oil reserves estimated at around 37 trillion barrels, its prospects are obviously enticing for whisky producers,” says Snyman.

At Diageo’s Africa Conference other macro-indicators were noted. The country is said to have a “low and reducing inflation rate” and a “new generation of affluent consumers”. Once labelled the Black Diamonds, the black consumer group has broadened. “Africa is more than the Black Diamonds – there is an emergence of a real middle class,” says Chivas’ Lacassagne. “It is a reality in South Africa and is now in Nigeria. This is the long-term development. What is important is that we see these trends emerging in other markets.” 

According to Diageo, value still represents 38% of the spirits market in Nigeria, mainstream is 17%, premium 38% and super premium is 7%.  Diageo has eight sales offices and, with this kind of reach, it sold 43% of all premium spirits in 2012, behind LVMH (15%) – for which Hennessey is the flagship brand – and Distell (7%). The group aims to “strengthen and accelerate sales of core premium brands” and “innovate at scale to meet new consumer needs”.  

Nigeria is the major market in West Africa but the region’s collective population is about 300m people strung together by the Economic Community Of West African States, which links Cape Verdi through to Nigeria. “Of all the various trading blocs, ECOWAS is the one that works best,” says Tim Crilly, MD of TC & Co, a German based spirits exporter which specialises in West Africa. “It is to Africa what the EU is to Europe – people don’t need a passport to cross borders and a common customs agreement.” 

For Crilly, the key to West Africa is bottle sizes. “Many distributors don’t know their own market. The man on the street doesn’t have a hope in hell of affording a 75cl bottle. My importer takes all the sizes I can give him – 20cl, 35cl, 50cl and 70cl. “In Nigeria the Christians are the biggest drinkers but Muslim consumption is sizable. They don’t drink in the open but instead with sachets – the sort used for shampoo – that they keep in their pockets.

“The potential of these markets is double or triple what people think it is – Diageo knows it,” says Crilly and adds that, for smaller countries, mixed containers are the key. Liberia, a country of 4m people, is not big enough to have a whole container of one SKU. It’s better to send mixed containers from headquarters in Nigeria.”

Over at Label 5, the key to its markets of Cameroon, Togo, Ivory Coast and Gabon is in its marketing plan. “The cost of media [advertising] is very low in our markets. We have billboards in Gabon and Togo, digital activity in Ghana and we are making a TV ad, which will be shown in Angola and probably in Gabon. We are working on radio spots too.” 

Kenya & East Africa

Kenya is one of a number of East African markets that have the right conditions for growth. Diageo is well positioned in the region through its brewing operations in Kenya, which borders Uganda and Tanzania and is close to Rwanda and Burundi. 

Combined, this region has a young population of 150m, which Diageo says will rise to 237m by 2030, along with GDP growth because of recent energy discoveries. The group also outlines the importance of the East African Community trading bloc “to enhance regional and economic integration”.  At its Africa Conference, Diageo said it expects premium and reserve spirits to grow by more than 20% between 2013 and 2017. 

The group won’t have it all its own way. “Our latest investment comes at a time when the economic prospects
across East Africa are highly promising,” says Richard Rushton, CEO of Distell Group, speaking of his company’s KES860m (R105m/£5.7m million) investment to acquire a 26% stake in KWA Holding East Africa (KHEAL), a leading spirits manufacturer, bottler and distributor in Kenya. 

Distell too says the “East African Community Common Market’s combined population” and “an economy boosted by recent energy discoveries, present exciting opportunities”. In Distell’s own words the deal is part of its “ramping up of investments in Africa”. A few months ago the company unveiled a bottling plant in Accra, Ghana. It has also secured land in Nigeria and Angola for manufacturing plants, which are scheduled to come on stream next year. Distell has a long-standing distribution partnership with KHEAL and Rushton adds that its investment was down to the company’s confidence in the Kenyan company, its staff and the people of Kenya.

The key to success

The investment in local people as part of a long-term approach is key. Carew explains: “I recommend a minimum five and preferably not fewer than 10 years. Develop people in the organisation who know and understand Africa, allowing those tasked with developing markets the time and resource to learn, because this takes time. 

“Encourage those functions within the wider organisation that service Africa to also learn about Africa. They will need to truly understand the requirements of customers, consumers and other local stakeholders, including those involved with legal, compliance and other statutory requirements.”

Author Jeffrey A Fadiman once described Africa as “the west’s commercial blind spot” but in at least a dozen or so markets this is surely no longer the case. Business thrives, opportunity abounds and risks are real. But if it a company does tailor its strategies and invests in local expertise, the greater danger may lie in not being in Africa, not that which lies within.