September 3, 2010 / 3:19 PM / 9 years ago

Kenyan market frets over impact of new alcohol law

* Analysts say law could curb EABL’s prospects

* EABL says law will stop illegal brewing

* Law legalises traditional brews

By Duncan Miriri

NAIROBI, Sept 3 (Reuters) - A new Kenyan alcohol law could open up East African Breweries (EABL.NR) to competition, with micro-brewers springing up to capitalise on the legalisation of traditional liquors, analysts said.

Controlled by Diageo (DGE.L), EABL dominates the alcohol market in east Africa’s biggest economy and its shares are one of the most traded at the Nairobi Stock Exchange. It posted a 10 percent rise in pretax profit for its year ended June. [ID:nDE67P1HZ]

Under the law, which was signed by the president this week, brewers of previously outlawed traditional drinks such as chang’aa — a clear liquor made from grain — will be allowed to operate freely.

The brewers have been operating clandestinely in mainly poor areas, with frequent raids by security forces on dens serving the sometimes deadly concoctions.

“Mini-brewers would potentially set up at the local level and gain market share depending on how well they are able to control their costs,” said Eric Musau, an analyst at African Alliance.

“Large brewers could start producing traditional brew but this would undercut on their existing high-margin products.”

BRAND NAME

The Alcoholic Drinks Control Bill also introduced curbs on advertising and where the alcoholic drinks can be sold.

“In principle, the law seeks to create sanity around issues to do with alcohol, so we are aligned with it,” said Ken Kariuki, head of corporate affairs at EABL.

However, he said the industry was concerned about a proposal in the law demanding brewers show health warnings on the risks of alcohol, comprising at least 30 percent of the total surface area of a bottle’s label.

“Thirty percent is a large portion of the package and this serves to reduce the brand name and value,” said Kariuki.

EABL sells the popular beers Tusker and Guinness along with spirits such as Johnnie Walker and Smirnoff.

Kariuki also welcomed higher fines for those who break laws on selling alcohol to underage drinkers.

“We think it is good because it seeks to knock off people who are making illegal spirits,” he said.

EABL’s strength through market diversification in the east African region could, however, offset any knocks the firm gets from the new law in Kenya. For example, it bought Serengeti Breweries in neighbouring Tanzania this year. [ID:nLDE61P1E9]

Still, that was not enough to assuage the market. EABL’s shares touched a low of 171.00 shillings in early trading on Friday against a previous close of 178.00, their lowest level since May.

“Investors fear that the alcoholic drinks regulations which reversed a 30-year ban on brewing and consumption of traditional liquor is set to loosen EABL’s chokehold on the market,” said Aly Khan Satchu, an independent analyst in Nairobi. (Editing by David Clarke and David Holmes)

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