Oromia/Ethiopia for Sale: Heineken buys its way two Ethiopian beer breweries
AMSTERDAM , Aug 12 (MarketWatch)- Dutch brewer Heineken NV (HEIA.AE) said Thursday it will enter the high-growth potential Ethiopian market with the acquisition of two state-owned breweries.
Heineken said it has been named preferred bidder for the Bedele and Harar breweries, which it will acquire for $85 million and $78 million respectively.
Heineken spokesman John-Paul Schuirink said the brewer expects to finalize the deal in the coming weeks and that it will continue to brew the local brands such as Bedele, Harar and Hakim Stout which have a combined market share of 18%.
The breweries have a total capacity of 600,000 hectoliters a year.
The deal makes Heineken the No. 2 brewer in Ethiopia after BGI Castel, a unit of privately owned French drinks company Groupe Castel, which has a 50% market share.
SNS Securities said that although the acquisition is small, it is attractive as it will add about 2% to the brewer’s revenues in the Africa Middle East region. In 2010, Heineken sales in this region amounted to EUR1.99 billion, on a total sales of EUR16.1 billion. The operational margin in Africa was 26.2%, compared to 11.4% for Western Europe or 16.8% in the Americas.
Heineken’s biggest African market is Nigeria, where it has a market share of around 65% and competes with Diageo PLC DEO +3.24% .
In a recent interview with Dow Jones Newswires, Heineken’s head of African operations Tom de Man said he expects Nigerian consumption to grow to 17 liters per head per year in the coming five to eight years, from 11 liters currently. He added that Ethiopia, Africa’s largest country by population after Nigeria, offers even more growth potential as the average beer consumption per head is only 3 liters per year.
Harar Brewery Background
Harrar Brewery is located in the outskirts of the historic town of Harrar in eastern Ethiopia, the fourth holiest islamic city. The brewery is well known for the popular taste of its beer and the diversity of its products. Harrar Brewery is the only Ethiopian brewery that sales abroad.
The Harar brewery markets a Pilsner to compete with Bedele, St. George, and Meta, but also produces an increasingly-popular dark beer, ” Hakim Stout ” and a non-alcoholic beverage, ” Harar Sofi ,” that appeals to the large Muslim population in the region and throughout Ethiopia.
Most of the machinery and equipment in the brewery are from the Czech Republic. It occupies a total area of 103,407 m 2 . Land is available for future expansion. Genela spring, from which Harrar beer is brewed, is within the factory’s compound and supplementary water supply has been made available from the Finkile deep-well and Alemaya Pump Station. The installed capacity of the brewery is 200,000 hl per annum. Under normal conditions, the daily capacity is four brewing cycles, each consisting of 200 hl. With slight changes in the brewing-house, the daily capacity could be raised to five cycles.
In the bottling section, the general production rate reaches 20,000 bottles per hour. Recently, the factory replaced its old labeling machines with a new machinery suitable for front and back labeling, neck labeling, foiling and date printing. There is also a new keg filling plant for draught beer, with washing and filling stations.
Harrar Beer is sold almost everywhere in the country. In the early years of its operation, the brewery exported large quantities of beer to the USA, Canada and Djibouti. This was interrupted in early 1990s, but has now been revived adding the Netherlands to the list of export markets. The sales activity is carried out partly by the brewery itself and partly by sales agents. The direct sales by the brewery covers some 46% of the total volume. Branch offices in Dire Dawa, Shashemene and Addis Ababa promote the sales activity.
Before the establishment of Assela Maltery, the brewery used to import malt from abroad. Nowadays malt is imported in small quantities for blending purposes only. In general, the brewery imports all chemicals for treatment and sanitation purposes. Hop is imported mostly from Germany.
The repair and maintenance of all machinery and vehicles are carried out by the brewery’s maintenance division. All machinery are in good condition. Downtime is minimal. Electricity is supplied from the Ethiopian Electric Power Corporation. Two transformers with a capacity of 1,250 KVA each are installed in the Brewery’s premises. Supplementary water is pumped from a place called Finkile, 33 km from the premises, which is jointly used with Hamaressa Edible Oil Factory.
Bedele Brewery Background
Bedele Brewery is located 483 km from Addis Ababa in South Western Ethiopia, in Ilubabor, Oromia Administrative Region. The construction of the factory started in June 1988 and production began in November 1993. Total area of land allotted for the establishment of the factory is 250,000 sq.m. of which 37,968 sq.m. is covered by different buildings and the rest is open space, which can be used for future expansion. The Brewery was designed to produce 250,000hl. of beer which can be sold as a bottled or draught beer.
The brewery was constructed with the assistance of Czechoslovakia. Bedele production manager Sirata Guluma said many beer ingredients are found locally. Barley is grown outside of Addis Ababa. Malt is processed in Asela, though some malt is imported from Germany during local shortfalls. Hops, both liquid and pellet, comes entirely from Germany. Yeast, added to the beer with air to induce fermentation, is imported from Europe but can be reused 3-4 times, according to Sirata. Sugar, an occasional additive, is produced locally.
The brewing process, including the mixing, sieving, and crushing of ingredients, the boiling, and the extraction of bitter residues takes 9-10 hours. The plant consistently turns out 75 million bottles annually. Modern features of the brewery are the 32 inverted conical fermentation vats (23 of which hold 1000 hectoliters; 9 hold 500 hectoliters).
These modern vats perform the two-step process of beer fermentation in one stage. Other breweries let the fresh batch ferment 5-7 days before moving it into another tank to separate the yeast. At Bedele, the yeast is discharged directly from the fermentation vats. This prevents any contamination or unwanted oxygenation, saves manpower, time and money, and improves the taste and hygienic quality of the beer.
The beer matures after 30 days, is filtered, and bottled on the compound before shipment to all regions of Ethiopia. Although a local water source may account for placement of the brewery in Bedele, the plant is far from the primary beer consumption areas around the capital.
Bedele exports its beer to United States through its exclusive agent Blue Nile Enterprises. The company introduced its 12oz bottle beers in special and premiere brand labels. The beer will have 4.2% alcohol just like the regular size bottle.