Senator Keg - Diageo's Answer to Illicit Brews in Kenya
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Case Code: BSTR452 Case Length: 18 Pages Period: 2004-2013 Pub Date: 2014 Teaching Note: Available |
Price: Rs.500 Organization: Diageo plc, East African Breweries Limited Industry: Beverages Countries: Kenya Themes: Business Environment, Emerging Markets |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Diageo in Kenya
The products of one of Diageo's parent companies, Guinness, had been available in the African market since 1827, when it started exporting beer to Sierra Leone. Guinness's subsidiary, Guinness Nigeria, was established in 1950 and its first brewery outside its home country was built in Lagos, Africa, in 1963. Guinness Nigeria was listed on the local stock exchange in 1965. Guinness recorded steady growth in Africa and its products Guinness Stout and Hart Lager became very popular. It established four breweries by 1982. Guinness' Tusker lager was popular in many African countries. Some of the popular products of Guinness in Africa included Guinness Foreign Extra Stout, Guinness Extra Smooth, and Malta Guinness.....
Proliferation of Illicit Brews
In Kenya, traditionally, people made their own fermented beverages. Almost all the ethnic tribes in Kenya had their own beverage which was brewed locally. In Africa, many customers consumed locally brewed hooch made from bananas, watermelons, root vegetables, sorghum, honey, sugarcane, etc. A study by the World Bank showed that in Tanzania, more than half of the total alcohol consumed was informally brewed. Estimates by a multinational brewing and beverage company showed that the informal, unregulated alcohol market in Africa was up to four times the size of the formal market...
The Solution is Cheap Beer
EABL then decided to develop a product to cater to the needs of the consumers, which would help the company increase its market share and also address the adverse effects of illicit brews. A multidisciplinary team with employees from the production, sales, marketing, research, finance departments and even an external marketing agency was created. The team conducted a pilot study for six months in Kenya to determine the factors that supported the idea of a low cost beer. The team visited urban and rural areas in the country, places where people met to have drinks, and also the homes of consumers to learn about the drinking habits of the people...
Senator KEG
EABL initially tested the drink in a few areas in Nairobi. It found that people in the urban slums were initially skeptical about the drink. At the same time, there were a few people who liked it and started drinking it regularly. Senator Keg was launched in November 2004. It was sold at a price that was one fourth of the price of Tusker, but was priced slightly more than the illicit liquor. At the same time, it was stronger than Tusker. Senator Keg contained 6% alcohol.
The kegs were provided with a special dispensing tap on the top. Beer was then pumped into 300ml mugs and served. EABL also equipped the outlets with a specially-designed hand pump and plastic hardware along with the kegs instead of expensive beer dispensing equipment...
Opportunities and Challenges
In 2008, the re-election of Obama as the President of the US stirred up the sales of Senator further. By then, the Kenyans had started calling Senator Keg 'Obama'. At that time, in Nairobi alone, the consumption of Senator Keg was 8,000 kegs a day, with each keg containing 50 liters. During the year, Senator Keg overtook Tusker in volume terms, to become the highest selling beer from EABL in Kenya.
In five years, Senator garnered a huge chunk of the low-end alcohol market. Its market share increased from 2% in 2004 to 44% of the regulated beer market. Senator Keg’s supply chain went on to employ over 100,000 people. More than 13.000 sorghum farmers were part of Senator Keg's supply chain....
Exhibits
Exhibit I: Diageo Organization Structure
Exhibit II: Diageo – Major Acquisitions
Exhibit III: Brands of Diageo Listed among the World’s Top 100 Premium Spirits
Exhibit IV: Diageo Financials 2009-2013
Exhibit V: Diageo’s Operations in Africa
Exhibit VI: Traditional Alcoholic Beverages in Kenya
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