The Managing Director of Kgalagadi Breweries has said his company is well on its way to recovering the market share it lost as a result of skewed calculation of the alcohol levy.
KBL is the operating company of Sechaba Brewery Holdings. It trades beer and soft drinks but also traditional beer through a semi-independent arm of Botswana Breweries.
Before government took a decision to correct the formula for calculating the levy, the underlying effects of the levy tended to punish the local producers–thereby giving importers a head start in unfair competition.
But since Government decided on correcting the levy calculation to make it more even-handed KBL has once again been on the upward prowl by way of exerting its preeminence as the country’s producer and trader of alcohol beverages as well as soft drinks.
At the height of the levy defects, many of KBL’s brands lost out to imported brands many of which became comparatively cheaper even as they were by and large considered some of the most premier in their categories.
Presenting this year’s financial results which show a marked growth vis-├á-vis losses of the last few years, Hloni Matsela said volumes at KBL were once again coming up. This, he said, was after a long lull of subdued performance.
He said growth was clearly attributable to a correction on how the 40 percent alcohol levy is now calculated.
“There is growth, but we are still significantly below where we were in volumes. Our business is very sensitive to volumes and prices. The initial levy calculation was an unfortunate mistake on the part of technocrats which gave our competitors an unfair advantage. Regaining our market share will certainly not be easy but we are doing that though,” said the immensely relieved Matsela.
On that score, he said he welcomed Government decision to listen to KBL’s request to take a look at how the levy was calculated with the view to getting it corrected.
“The calculation of the levy was an unfortunate flaw. I still believe it was an unintended mistake. But that is now history,” he said.
He added regaining their market share will involve additional investments including on marketing.
“Beer is an acquired taste. You don’t just wake up one morning and decide you are now leaving tea for beer,” he said.
Although the company is, strictly speaking, not yet out of the red, a decision has been made to increase dividends declared this year.
“I feel sorry for Sechaba shareholders. The only reason they invested was in return for money. In the last three years they have been getting reduced dividends payout.”
Matsela said as a way of cutting on costs the company will be retiring a bond so as to reduce the cost of money. He said the company will also want to invest on new bottling technology.
He said despite the much welcome growth, the group has had to contend with rising distribution costs mainly on account of rising fuel prices.
The management’s thinly veiled exuberance may turn out to be short-lived as trading conditions for KBL’s traditional sector are expected to come under pressure following Government decision to introduce new regulations controlling sale of the non-clear beer.
Unless Government extends the waiver, the regulations are expected to come into effect next month. Opinion across the beer industry is that these regulations may turn out to be more damaging than the 40 percent alcohol levy.
To mitigate the expected hardships, KBL has set aside P10 million to help build infrastructure for the traditional beer traders who, as a result of the regulations, will no longer be expected to sell from their homesteads.
Matsela said 84 percent of Chibuku (traditional beer) retailers will be affected by the impending regulations.
“They are the people who sell close to 60 percent of all Chibuku volumes. Chibuku sellers are mostly women, single, and also of advanced age. They are relatively not so educated and have little chances of approaching the banks for finance. These are the people who will be affected most. As KBL, we continue to engage government on their behalf,” said Matsela.
