Harsh environment forces KBL to close Lobatse brewery

Shutdown: KBL is closing the 36- year old brewery due to lower sales
Shutdown: KBL is closing the 36- year old brewery due to lower sales

The harsh trading environment has forced Kgalagadi Breweries (KBL) to close down production activities at its opaque brewery operations in Lobatse, impacting on 88 jobs.

In a statement released yesterday, KBL said since 2008, the business has faced an ever-increasing levy on alcoholic beverages and a host of regulatory measures.

This included the reduction of alcohol trading hours, the Traditional Beer Regulations and increased licensing restrictions, among others.

“Indeed, in recent years, the business has been forced to continually look for new ways to reconfigure its business units and support structures in order to remain competitive when meeting its obligations to shareholders and stakeholders.

“Following the various interventions to stem the tide, KBL has been left with little option but to close production at Lobatse Brewery, making this the second closure of their Chibuku and Mageu manufacturing plants in two years.

“This followed the closure of the KBL Palapye Brewery operations in 2013,” the company said.

KBL Lobatse Brewery has been manufacturing opaque beverage products Mageu and Chibuku since 1979.

In 2013, KBL and the then BBL merged into a single business entity in an effort to streamline operations and costs when faced with the tightening of the regulations and the levy, which is currently pegged at 55%.

According to KBL, the opaque beer portfolio has suffered sustained challenges in its trading environment as a result of the traditional beer regulations that were implemented in July 2012.

The regulations effectively banned the sale of traditional beer in residential areas that previously represented approximately 80% of trading channels for KBL Opaque Beer Division’s traditional heritage product, Chibuku.

“Other factors that ultimately contributed to this untenable situation relate to licensing issues as well as the unavailability of land to set up Chibuku distribution points.

“Over this period since 2008, close to 10, 000 small entrepreneurs earning a living out of selling Chibuku have been reduced to as little as 750 in all,” added the statement.

This sustained increase in alcohol regulation has also resulted in some unfortunate unintended consequences since the net effect has been that, it is increasingly the lower income consumers who have been most affected.

Notably, with this reduction in Chibuku outlets, the traditional consumers of the product have turned to potent and often dangerous illicit brews that are produced under poor quality and questionable hygienic standards.

“Despite our numerous attempts to cushion  the overall downturn; we have had to close down our Lobatse Brewery manufacturing facilities.

“Sadly, this will result in the loss of employment for some of our employees and the further reduction of small business entrepreneurs,” said KBL Managing Director, Johan de Kok said.

As part of the process, efforts will be made to try to absorb as many of the potentially impacted employees of Lobatse, added De Kok.

The Lobatse Brewery will subsequently be used as a distribution centre, subject to further notice.

Operating profit for Sechaba Holdings, which holds 60 percent in KBL, fell 3.7 percent to P201 million in the year ended March 2015, as consumers shifted to the affordable but lower profit-margin bulk packs.

According to Sechaba, sales volumes in the period grew by 4.9 percent on the back of strong demand for 750ml Returnable Glass Bottle Pack for alcoholic beverages, while the two litres PET bottle also drove sales of the non- alcoholic beverages.

However, the higher sales did not translate into higher profits as the bulk packs have lower margins compared to cans.


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