Monday, September 27, 2021

Liquor Trade: KBL picks up the pieces

It is going to be an uphill battle for Kgalagadi Breweries Limited (KBL) to recover from its business misery as it picks up pieces of the damage caused by the continuous alcohol bans imposed by government. The country’s largest brewer says it lost over P1 billion due to various bans from 2020 to 2021. Livelihoods have adversely been affected by these bans.

KBL directly and indirectly employs approximately 50 000 people. It also supports approximately 200 000 livelihoods through its extensive value chain.

The government made several bans of alcohol on the backdrop of the Covid 19 escalations that are currently haunting the country. The position by government was that alcohol is a strong factor in the escalation of the Covid 19 pandemic. After the recent prolonged ban, the government succumbed to pressure from the alcohol industry as it lifted the ban last week Monday. KBL had taken the government to court challenging the alcohol ban. The brewer withdrew the case late last week after government lifted the alcohol ban.

KBL communication manager – Masegonyana Madisa said all has not been well at the brewery owing to a number of challenges which were exacerbated by the alcohol bans from last year.

“As a result of the three alcohol bans of 2020, KBL reported a total revenue loss of P520 million; revenue losses in 2021 are much higher as the bans this year have been longer compared to the previous year. In the eight weeks of no trade KBL lost approximately P800 million,” he said.

This therefore brings the total loss of revenue to approximately P1.320 billion. Madisa said as of the 6th of September 2021, when the alcohol ban was lifted KBL had lost 51 days in which it could have been operating.

He revealed that in 2019, KBL produced a total of 140 million litres of clear and opaque beer (excluding imports) which is representative of typical annual production levels for the company. However Madisa said as a result of the production interruptions caused by the alcohol bans, the volume output in 2020 produced dropped significantly to 96 million litres and 51 million litres in 2021 to date.

He also added that between 2020 and 2021, the company lost approximately P150 million worth of investments. He revealed that the company anticipates further cuts to investment for capacity projects going forward, as a result of the two bans instated this year.

Asked on the journey of KBL and the challenges that it has been facing over the years Madisa said the trading environment was conducive until 2008 when the company started experiencing difficult trading and regulatory conditions which were put in place by government more especially the introduction of the Alcohol Levy and implementation of Traditional Beer Regulations (TBR).

“The alcohol levy was introduced in 2008, with the intention to curb excessive alcohol consumption. It was initially set at 70 percent but reduced to 30 percent and was subsequently increased over the years to 55 percent in 2015. Although the objective of the levy was to control demand, coupled with a reduction in trading hours and licenses for alcohol retailers, the effects have had an impact on the alcohol industry and in the process negatively affected the entire supply chain,” said Madisa.

He said the Traditional Beer Regulations that were introduced on the 1st July 2012 necessitated a major revision of the opaque beer business model as about 86 percent of the traditional retail space was lost. He added that the main challenge in complying with the TBR was the unavailability of suitable land to set up Chibuku depots. He said as a result, to sustain the business KBL was forced to constantly innovate to survive the effects of difficult trading and regulatory conditions. Madisa added that some of the difficult measures have unfortunately been drastic such as the closure of two opaque breweries in Palapye, Lobatse and three clear beer depots in Selibe Phikwe, Kanye and Maun, laying off employees.

“Prior to the introduction of the Alcohol Levy in 2008, KBL employed 1 167 people compared to the current 600. All these challenges facing KBL led to the suspension of sports sponsorship and Corporate Social Investment initiatives,” he said.

Interestingly Madisa said a study by Botswana Institute of Development Policy Analysis (BIDPA) found out that the levy introduced on alcohol had failed to achieve its intended its purpose which is restriction of alcohol. He said not only did it fail to reduce alcohol consumption rate, the tarrif actually forced consumers into more desperate alternatives. He said furthermore there were negative impacts such as some consumers choosing products with higher Alcohol By Volume(ABV).

“The reduction of trading hours on the other hand led to criminality mushrooming of shebeens which unfortunately operated without licenses. In the end, illegal business started blossoming at the expense of regulated legal trade of alcohol which obey the law,” he said.

He emphasized that when government implements alcohol ban, there are various unintended consequences that take place such as illegal trade of alcohol and criminality. He said if government continues to implement total ban of alcohol in trying to deal with the Covid 19 pandemic, the illegal trade will be entrenched and it will be difficult to deal with. He also said during the ban there is always mushrooming and consumption of unregulated and unsafe home brews.

On how much liquor KBL had stockpiled and possibly expired during the ban, Madisa said in 2020, KBL incurred losses of up to P40 million in write-offs due to expired stock which could have been avoided. He however said regarding the stocks they have built to date, KBL has enough stock to meet the demand for now. Asked if the company will retrench some of its employees due to the financial challenges it is facing, he could not confirm or deny.

“Currently we are under the State of Emergency (SoE) which does not allow KBL to retrench. However the announcement that the SOE will not be extended, as with every business, any major developments that hinder business growth eroding shareholder value and affecting sustainability of the business may force the company to restructure, which may or not include retrenchments.

KBL is owned by Sechaba Brewery Holdings which holds 60 percent shares while SABMiller, a South African company owns 40 percent shares.

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