????A guy walks into a bar and orders a pint of beer. But this isn't a pub in London or a sports bar in Milwaukee -- it's a watering hole in Uganda. And the beer, from the same company that brews Miller, is made from sorghum, a grain common to Africa.
????For centuries, Africa's slum dwellers have scored cheap buzzes by fermenting local crops like banana, pineapple and palm into home brews, some of which is so toxic it sends drinkers to the hospital. Now SABMiller wants bootleggers to buy the company's own beer instead.
????By building high-tech microbreweries and micro supply chains sourcing local ingredients like sorghum – a hearty grain normally used for syrup and cattle feed – from farmers in Uganda, Tanzania and Zambia who may buy their beer later, the world's second-biggest brewer hopes to crack a virgin market.
????Sourcing local ingredients cuts supply chain price volatility, and logistics, inventory and import duty costs – and the result is a product priced 20% less than barley beer. The company pegs the Africa home brew market at triple that of traditional beer. Outside South Africa, Africans consume just 7 liters of beer a year per capita (excluding home brews), versus 77 liters in the U.S., so enormous opportunity looms.
????SABMiller subsidiary Nile Breweries first concocted the sorghum beer recipe in 2002 (it also scored lower sorghum beer taxes), making it an early mover in the sub-pyramid space. Today 35% of all Ugandan beer by volume is Nile's Eagle brand sorghum beer, which is also sold in Tanzania, Zambia, Zimbabwe and Swaziland.
????But other brewers are quickly following suit. Since 2008, Heineken and Diageo (DEO) have done the same in Ghana, Sierra Leone and Cameroon, albeit not replacing pricier barley with sorghum at a 100% rate. As prices for imported staples such as barley soar and key markets like South Africa stagnate, these companies are finding opportunity with home grown brews in other parts of the continent.
????"With barley prices so high, it helps brewers' margins," explains Tim Drinkall, manager of Morgan Stanley's Frontier Emerging Markets fund. "Whenever a company can cut costs and keep up quality, it's a positive."
Economic boost
????Micro supply chains also help local economies. Nile Breweries generated about $92 million in value-added for the Ugandan economy and supported roughly 44,000 Ugandans through agricultural, manufacturing, retailing or distribution jobs in 2007, according to a French business school INSEAD study. (Some 9,000 farmers sell the brewer sorghum.) The company is also Uganda's fourth-largest taxpayer, capturing value previously lost to the black market.