Wednesday, January 19, 2022

A race to rock bottom: A tale of KBL’s non-stop decline

At the end of every sentence, the Managing Director of Kgalagadi Breweries forcefully gasps the air before adding an almost mandatory suffix the composite effect of which is that relations with Botswana Government have never been better. It is a charm offensive which from the look of things it may never bear any fruits.

While Johan de Kok is trying hard to make everything seem normal at least on the surface, everyone in the room knows so well that beneath the beaming smile on his face, everything at a KBL is somber. When de Kok arrived at KBL slightly over a year ago in what has been called his second coming (he was first at KBL in the 1990s as Marketing Director), he knew he was inheriting a poisoned chalice. His immediate predecessor, Hloni Matsela had fought high and main, first to put the levy at bay and later to save the company from ensuing hemorrhage. In both instances Matsela failed. By the time he left he was a broken man. He was at one point to liken the situation at KBL to a “bloodbath.”

For the brewer the last five years have been the hardest in the company’s forty year history. And the numbers speak for themselves. Since 2008 all the company’s major performance indices have been on a constant, non-stop decline. With near scientific precision all that is wrong with KBL can very easily be traced to the alcohol levy, which at 50% has become a universally despised L-word. For many insiders it remains a source of mystery that the company continues not only to stay operational but also remain listed on the local bourse.

The fact that the company is still standing after all that it has been through is in a totally unintended way testimony not only of its resilience but also its depth. De Kok is adamant that notwithstanding all the troubles, KBL is in Botswana to stay. To drive his point home he highlights the fact that SABMiller, which has the management contract, recently approved over P200 million in capital expenditure. “It would be unrealistic,” he says “to approve that kind of money if any decision to leave had been taken.”

In any case, he adds as an afterthought, KBL is still making profit: “And it will be a substantial lot of decline before we stop making any profit.” By all accounts Botswana Government has beaten KBL into submission. Whereas five years ago the company had threatened to go to court to challenge the legality of the levy, today, de Kok is in very charitable waxing lyrical about SABMiller’s long term commitment to Botswana. “Take it from me, we are not about to leave.” He dismisses any talk of SABMiller departure as speculation by the media. Given what situation prevailed immediately following the introduction of the first levy in 2008, SABMiller’s overly emphasized commitment to Botswana is a Damascene change of attitude that has however not been without casualties.

De Kok is eager to point out that behind the scenes consultations with authorities are going on all the time. Based on the emotive levels of the issues at hand, not to mention the exceedingly entrenched positions on both ends of the spectrum, to say such consultations are often punctuated by mistrust and confrontation is an understatement. The alcohol levy was introduced by government with a clear intention of curbing alcohol consumption in Botswana. But notwithstanding the levy, people have continued to drink alcohol. The only difference, says de Kok is that beer has become increasingly unaffordable for a growing number of people. Faced with such a dilemma, for KBL the task has been to reduce costs, if not to retain their market share then at least to stay competitive.

It has not been a roller-coaster. Just as KBL was beginning to get used to doing business in an environment laden with all the ills meted by the alcohol levy against clear beer, Botswana Government in a fresh twist introduced yet another raft of restrictions; this time targeting the traditional opaque beer. Just as KBL had feared the consequences were immediately apparent; a resounding proof of traditional beer’s market sensitivities. Volumes slipped as consumers shifted towards less hygienic alternatives to the Chibuku brand. To turn the tide against declining volumes in the opaque beer KBL is upgrading depots to levels hitherto associated with clear beer. Enhancing hygiene is also receiving added attention. Shortage of land is proving the most rigid challenge. If they had thought they would be in it for a short haul, KBL was badly mistaken. It would seem like when it comes to alcohol Botswana Government position is shiftless.

To adapt to the increasingly hostile trading conditions KBL has so far entered into a protracted restructuring mode from which the company is still yet to emerge. The starting point was to improve on efficiencies on manufacturing which entailed overhauling the production line which included a P300 million capital expenditure on the plant. Inevitably the company also shrunk its workforce headcount. De Kok says at the moment the company is focused on cutting distribution related costs.

“We believe there are savings to be made from distribution,” he says. De Kok says KBL decline has slowed down. He also adds that while the company has not reached rock bottom yet, it will not be long before that happens. Fears abound of what will happen should government decide to increase the levy any time soon. Analysts are however united that for as long as the alcohol levy is in place especially at the current height with possibility of additions, no amount of restructuring and reforms will ever be enough to turnaround KBL let alone restore it to its former days of glory.

Given what challenges the company has been through, it no wonder that on a recent visit to Botswana the London based Executive Chairman of SABMiller, the global flagship that owns KBL is said to have been pleasantly surprised to learn that KBL was still trading afterall.

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