Mirroring strategies in other sectors targeting the untapped commercial potential of ‘bottom of the pyramid’ consumers, the company will focus on creating a differentiated pricing model to protect affordability for its lower cost lines rather than keeping pace with inflation.
SAB Miller executives hope the scheme will allow them to capture the market currently dominated by informal alcohol producers.
“The key difference between Africa and the rest of the world is the large volume of informal alcohol - this is an opportunity,” says Mark Bowman, the company’s managing director for Africa.
In other sectors, companies such as pharma giant GlaxoSmithKline (GSK) have adopted similar volume-based strategies for products in African markets in order to increase affordability.
While investors continue to target new products and services at Africa’s growing middle classes - whose number have increased from an estimated 4.6 million to 15 million between 2000 and 2014 in 15 key economies, according to a recent study - interest in catering to the region’s large low income population is also growing target.
More than 4 billion people, or 72 percent of populations across the emerging regions of Africa, Asia, Eastern Europe, and Latin America and the Caribbean, are considered bottom of the pyramid consumers, according to the IFC. Typically these segments are underserved and reliant on informal markets. However, designing products and services at appropriate price points while still allowing companies to make a profit can often be challenging using orthodox strategies.
SAB Miller’s growth by volume in Africa outpaced Asia Pacific in the third quarter of 2014, indicating the growing importance of the market. However aside from Uganda, where SAB Miller’s affordable product lines constitute 60 percent of the company’s sales volume - the company’s inroads into low income markets remains underdeveloped, according to Mr Bowman. It is this fact that the new strategy is designed to remedy.
“We would probably be a little bit uncomfortable if that were the case across the whole of Africa, but logically if it makes sense given the the price point that you would sell one and a half to two times more affordable beer than mainstream. I think the problem is our own psyche around this thing,” he says, pointing out that beer at $1 still constitutes a premium product in this part of the world.
However, as the company shifts its mentality around the new approach, it will seek to grow this segment “as aggressively as we can...as long as we can preserve reasonable growth and not cannibalize unnecessarily established positions” Mr Bowman says. According to Bowman, this will mean pricing at approximately 60 to 90 percent of inflation depending on the market, as opposed to the standard 90 to 100 percent now.
The company has already implemented differentiated pricing in South Africa, one of its key markets. Low pricing regimes are expected to be applied in approximately 70 percent of SAB Miller’s African markets.
According to Mr Bowman, a focus on improving efficiency and shifting focus away from focusing on margins will be key to the new approach.
“Our focus now is on how many dollars we can make, or local currency equivalent, as opposed to exactly the margin. I would say on an annual basis if we were neutral to slightly positive in terms of margins we would be happy - so the emphasis has moved away from the margin.”
This article was originally published by This Is Africa, a sister publication to fDi (www.thisisafricaonline.com)