Senator Keg - Diageo's Answer to Illicit Brews in Kenya
Case Code: BSTR452
Case Length: 18 Pages
Pub Date: 2014
Teaching Note: Available
Organization: Diageo plc, East African Breweries Limited
Themes: Business Environment, Emerging Markets
Abstract Case Intro 1 Case Intro 2 Excerpts
This case is about East African Breweries Limited 1 (EABL), the Kenyan subsidiary of UK-based Diageo plc (Diageo), and its unique product targeted at low income consumers - Senator Keg. In Kenya, as in many African countries, the per capita consumption of alcohol was high, but most of it was illicitly brewed. With 46% of the people earning less than US$ 2 a day, the mainstream drinks priced at US$ 0.60 to 0.85 were unaffordable to them. The locally brewed and homemade drinks were, however, not very hygienic and posed a health risk. To make matters worse, chemicals like methanol 2 were often added to the brew. Often, they were fortified with toxic substances, which made the resulting drink unsafe. However, the high prices of commercially produced alcoholic beverages ensured that this kind of liquor brewed locally from finger millet malt (Busaa) and a corn-meal based drink (Chang’aa) continued to be popular with the people, as it was available at around one tenth of the price of commercial beer.
To address this issue, EABL planned to come out with a low-cost beer. This called for cost reduction at every phase, right from the ingredients that went into the product, to the production process and distribution. EABL used locally available crops like sorghum and barley to brew beer. Instead of single serve bottles, it sold the beer in kegs, dispensing the beer with a pump. The beer was sold through more than one thousand outlets, some of which had sold illicit liquor earlier. The company also convinced the government about the harmful effects of spurious liquor, and how this new product would be able to address the issue. This helped it obtain a tax remission of 30%. The beer called ‘Senator Keg’ was launched in November 2004 and was priced at US$ 0.27 per 300 ml.
The low price and high quality attracted many consumers, who migrated to Senator Keg from illicit alcohol. The price was reduced further after the government reduced the excise duty on the product. The brand witnessed healthy growth and penetrated the illicit brew market. It grew highly popular among low income consumers and EABL’s production and distribution practices ensured that the price remained low and that the drink was widely available.
However, a few years later, the company started facing challenges, mainly due to changes in the economic policies. In 2010, the 30-year-old ban on brewing and consuming traditional liquor was repealed, and changes were stipulated in the distribution of alcoholic beverages. Again, in October 2013, the Kenyan Revenue Authority decided to levy a tax on Senator Keg realizing that apart from the consumers of locally brewed liquor, several consumers of premium beer were shifting to Senator Keg, thus affecting tax collections. Due to additional tax, the price of Senator Keg increased, and within a few months the demand fell by 80%.
To counter the fall in sales, EABL came out with Senator Dark, priced lower than Senator Keg. Along with it, the company also started testing a low cost spirit, Jebel Gold, in 300 outlets across the country. The drink was priced at Sh 10 to Sh 15 for a 30 ml tot.
The case discusses in detail how EABL developed a new product and new distribution systems to reach the hinterlands of Kenya in a proposition that was beneficial to both the company and the consumers. The company benefited due to a new consumer base, while the consumers gained access to high quality beer at an affordable price. The case also illustrates how changes in the business environment can affect the fortunes of a company.
The case will help the students:
- Introduce how to market products to low income consumers
- Understand the importance of quality, affordability, and access for low income consumers
- Understand the product functionality needed for BoP markets
- Understand how price performance of products can be maintained
- Study Distribution models to ensure easy availability of products
- Analyze the importance of conserving resources to reduce price and also reduce impact on the environment
- Study how stakeholders can be made a part of the business through inclusive business models
- Understand how the pricing policy differs for a product when addressing BoP customers
- Understand the impact of political and economic environment on business decisions
Diageo in Kenya
Proliferation of Illicit Brews
The Solution is Cheap Beer
Opportunities and Challenges
Senator Keg, Kenya,Bottom of the Pyramid, Diageo, East African Breweries, Tusker, Spurious liquor, Illicit liquor, Low income consumers Keg, Distribution ,Low cost beer, Kenyan Revenue Authority, Emerging markets, Fermented drinks
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