With Diageo selling out most of its portfolio in the West African Market, questions have been raised about its stake in the East African Market. The Global Beverages player sold the Nigerian Unit (Guiness Nigeria) to Singapore-based conglomerate Tolaram for USD 70 million. Analysts immediately shifted their eyes to the East African market where Diageo has a holding stake in East African Breweries Limited (EABL).
It’s now been confirmed that Diageo is breaking up its beer and spirits segments, with one head of spirits at Group level. The beer segment will continue with in-market reporting structures, but the spirits segment will have direct to group reporting structures. Alvin Mbugua, the former Managing Director of Uganda Breweries Limited (UBL) will be returning to head the new Group spirit segment. Whereas Andrew Kilonzo remains as the Managing Director of Uganda Breweries Limited, the International Distillers Uganda (IDU), which is the spirits segment will now directly report to Alvin Mbugua.
Thus, the beer segment (Uganda Breweries) remains with in-market reporting while the spirits segment (IDU) shifts to group-market reporting. This is to align with Diageo’s focus of growing the spirits market in East Africa. Diageo’s main interest has always been in the spirits category. However, this had not grown as expected in the East African region. With this new spirits-focus, Diageo expects to have an end-to-end streamlined process to unlock growth here.
Many expect Alvin Mbugua’s recent experience as the Managing Director of Diageo’s Caribbean and Central America (CCA) region to play into the expected turnaround strategies. He’s a maverick at turnaround strategies having steered UBL through the turbulent Covid-19 pandemic. It’s now back to him to work around the much-needed transformation in the spirit segment.
Many think this is Diageo’s final card with the East African market. It will determine their next move in the region. A successful spirits business could imply that the beer component could be solved off or maintained (mainly for the production and distribution of the Guinness brand). Diageo believes there’s opportunity in East Africa’s young generation, and the emerging middle class. Although most of East Africa is still majorly a beer market, the margins from this continue to grow slimmer compared to the spirits margins. The highest beer brand delivers around 45-50% in gross margin, yet this is the least expected of a spirit brand. Although beer is still EABL’s cash-cow, the current challenge is for the business to turn its spirit question mark into a star.
Many also think, the move is to help each segment reflect and absorb its true costs. By breaking this two apart, it’s easy to see the devil hidden in the details. Spirit getting to carry its costs, and beer doing the same helps to drive transformation whether in production or even in marketing.