Alcohol levy: Consumers desert local brews for imports

Brian Benza
Staff Writer | Friday November 26, 2010 00:00

Briefing the media on the company's interim results for the half-year ended 30 September 2010, Matshela said that due to the unfair implementation of the alcohol levy which has made imports more affordable than locally-produced alcoholic beverages, their market share and profits continues to slide while the expected increment in the alcohol levy will see more consumers desert KBL and BBL beverages but not necessarily stop alcohol consumption. 'I believe for the alcohol levy to serve its intended purpose, it must affect all the sellers in the same way. For some time now, we have been engaging the government to make them understand that the implementation of the levy gives an unfair advantage to importers,' he said.

Because the levy is collected at the point of entry of imports, it is charged on cost, insurance and freight of import while it is charged on ex-factory selling price for KBL and BBL.

According to Matshela, this means that the levy is even imposed on marketing, sales and distribution costs as well as profit margin of the local producers while in the case of comparable competitor imports, the levy is charged only on the cost to the importer. 'The resultant quantum of levy is therefore significantly lower in the case of imported products. I am convinced that we have succeeded in making government understand this point though I cannot say with certainty when or if they are going to correct this anomaly. The fall of our sales does not translate into lesser alcohol drinking or abuse, consumers are just finding cheaper alternatives,' he said.

According to the Ministry of Trade and Industry, alcohol consumption has not significantly declined since the introduction of the alcohol levy with overall consumption of alcohol per litre decreasing from seven million in the third quarter of 2008 to 6.2 million litres in the fourth quarter of last year.

Looking ahead, Matshela says they see conditions getting tougher for their business as there has been indication that the Alcohol levy will be further increased. During the State of the Nation address delivered three weeks ago, President Ian Khama said that government would, from the 1st of December, impose an upward adjustment to the Alcohol levy.

Sechaba say their volumes will further be impacted by the increment and more of their customers will again switch from 'expensive' but low alcohol content beverages to cheaper, high alcohol content beverages. 'Our current estimates are that sales volumes will be affected by the same margin the levy would have gone up by. If the levy goes up by 10 percent, then we estimate our volumes to go down by the same margin.'

For the period under review, clear and opaque beer sales went down by 6 percent while in the previous full year, sales went down by 34 percent and 13 percent respectively.

To buttress his point, Matshela says that even within KBL's product range, there is a noticeable trend of consumers migrating to beverages that have higher alcohol levels at the expense of the 'softer ones'. 'The St Louis brand, which is a weaker beer with an alcohol content of 3.5 percent, had a 57 percent contribution to our volumes three years ago, but that has since declined to 33 percent. On the other hand, our Black label brand which has a 5 percent alcohol content has since gained tremendously in terms of sales and it now stands at 29 percent contribution from around 10 percent before the implementation of the alcohol levy,' he added.

Although KBL's profits have been going down for the past two years due to a combination of the alcohol levy, recession and some unusually very cold weather spells, the company is still hopeful that with the recovery in mining revenue as well as the recently announced 10 percent increment in civil servants' salaries, volumes should improve in the second half of the year. Looking further ahead, Matshela says that the effect of the alcohol levy should be absorbed in the medium term as the rate at which their profits are falling is already diminishing and the company profits should stabilise in the near future.

For the period under review, Sechaba's operating profit declined by 6.5 percent to P108.5 million, with the operating profit for KBL plunging by 26 percent while BBL charged ahead 25 percent. Despite the fall in profits, Sechaba still managed to declare a dividend of 28 thebe shares although it was lower than the previous period of 38 thebe per share.