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Alconomics

Dec 14 2012 11:07 *Jarred Myers

Impala beer is a huge hit.

Company Data

SABMILLER PLC [JSE:SAB]

Last traded 587.69
Change 3.84
% Change 0.01
Cumulative volume 424424
Market cap 983.54bn

Last Updated: 01/09/2014 at 04:25. Prices are delayed by 15 minutes. Source: McGregor BFA

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IN HIS his co-authored book, The Innovator’s DNA, management guru Harvard Professor Clay Christensen of the Business School explains that innovators are both born and made, and that their success can be attributed to what he calls discovery skills.

These discovery skills of questioning, observing, networking and experimenting are synthesised through associational thinking and encourage us to take risks and challenge the status quo, ultimately generating innovative business ideas.

Drilling down into the discovery skill of observing, Christensen recommends reading a publication you wouldn’t normally look at, going to a social event outside your regular sphere or attending conferences on unrelated industries - among some of the triggers for associational thinking.

Taking this advice in hand, I decided to stray from the warm embrace of mining and minerals and attend the Economist Group’s conference on feeding the world held recently in Johannesburg.

As hypothesised by Christenson - that the solution to one industry’s challenges may well lie in exploring another’s - I was on the lookout for replicable solutions pertinent to the mining sector.

I persisted without much luck until the final presentation of the conference where, as if scripted in a romance comedy, I discovered what I was looking for: Gerry van den Houten, technical director of SABMiller [JSE:SAB], introduced what he called "Africa’s best-kept secret", which - appropriately - had much ado about beer.

If I were to poll readers of this article as to whether they had heard of cassava, probably 10% would respond in the affirmative.

If I were to ask readers if they could identify it in a veggie line up, nodding heads would probably drop to 1%, so it’s heartening to discover how this unassuming vegetable is sprouting a business model with revolutionary potential.

Exploring how a partnership between an African government, a multinational corporation, a European startup and local smallhold farmers is working towards crafting a carbonated solution to boost the balance sheets of all stakeholders is relevant to South Africa’s macroeconomic problem solvers.

In policy wonk parlance, this partnership is called a public-private-people-partnership (PPPP) which is the über-syllabic version of the triple bottom line.

Drilling down into this, venture we know most of the cast:

• SABMiller; the world’s number two brewer.
• Smallhold farmers; the purported hopeful saviours of the continent.
• Mozambique; a resource rich, otherwise poor south-east African former Portuguese colony, with a gross domestic product (GDP) of $24bn and 24 million inhabitants.
Mozambique has displayed stellar growth - well over 7% annually - over the past decade, but is heavily reliant on aluminum which accounts for a third of all exports.
• DADTCO; the Dutch Agricultural Development and Trading Company , a startup you’ve probably have never heard of, which commercialised the disruptive innovation which is the star of this story.

So what are these stakeholders doing right, and more importantly, how can we learn from them?

Alcohol is an interesting product. Historically, South African workers on wine farms were paid in cheap wine and not fiat currency.

This tot (or dop as it was known in Afrikaans) system was finally arrested in the 1990s, but economists have managed to revive its spirits by calculating how many hours an individual would need to work in order to afford a litre of beer. In Mozambique, that figure is nine hours (SA is a tippling 54 minutes).

Vice has an uncanny propensity for spurring innovation, and Africa’s poor have created an informal liquor industry of home breweries and the like which supply half the quaffing continent.

This phenomenon not only renders its drinkers hung over, but governments also lose billions in taxes and these unregulated illicit beverages are responsible for a plethora of deaths, dependency, misery and illness.

Interestingly, there is a positive correlation between GDP per capita and beer consumption per capita. What this means is the more you earn, the more you burn (on beer) - this bodes well for brewers as Africa’s middle class emerges.

To explain the reality, we may construct an imaginary Venn diagram. We have one circle of high demand for cheap beer, another circle of no taxes due to illicit brewers and a third circle of commercial brewers trying to capture market share.

When we overlay these three circles, what emerges in the centre is a market segment which needs cheap-licit-beer; it also happens to be the largest beer-drinking segment in Africa.

Introducing Impala beer: it attracts a lower tax of 10% versus 40% for lager, is 30% cheaper than its mainstream rivals and as safe to drink as any other commercial beer.

But that is only the starting point of what makes Impala beer’s story remarkable.

Cassava provides a third of caloric intake in some African countries. It is the third largest source of carbohydrates in the world and is grown by most farming families in countries where it is consumed.

It can be harvested all year round but it has the tricky property of beginning to rot within a day of harvest, making commercialisation near-impossible.

Dutch cure for Dutch disease

Africa receives an earful of complaints about its resource curse known as Dutch disease, so it is heartening that the Netherlands has delivered a Dutch cure also.

DADTCO invented a compact processing unit that fits into a regular container, which is trucked around the region to designated platforms where smallhold farmers deliver their crops.

In this unit cassava is processed into a pulp, or cake as it is known, which is stable for months and perfectly suitable for commercial processing.

With this disruptive technology now available, all that was needed was a use for cassava cake. It turned out that SABMiller was willing to experiment and crafted a beer containing 70% cassava, which in blind taste tests defeated premium beers triple its price.

It so happens that locals can’t get enough of this patriotic booze. Sales targets have been smashed and growth outlook is inebriatingly optimistic. The beer is profitable, thanks to lower taxes which in its first year landed $2m in state coffers.

The fundamental game changer, however, is not that a multinational has found a way for the profitable introduction of a low-cost product into a strong market segment; it is where all this cassava comes from.

Impala Beer is sourcing its cassava from over a thousand smallhold farmers, indirectly employing over 30 000 people. It is merging commercial and smallhold farming via a hub and spoke farming method, which allows the stems to be produced commercially and then disseminated to smallhold farmers, thereby optimising yields.

But this is only the pilot project. SABMiller plans to roll it out in Zambia, Ghana, Nigeria, Sudan and Zimbabwe, sourcing cassava from over 50 000 smallhold farmers.

The stakeholders in this cassava case study have clearly got something right. The question remains: how can SA imitate and deploy similar initiatives?

The answer is not prescriptive; we can hypothesise and brainstorm and opportunities will surely emerge.

The fundamental framework, however, is prescriptive - success will occur only when industry and government embrace their unique roles and abilities, supporting profitable innovation by each doing what it does best.

In the beer example it is clear: government legislated a special tax dispensation for local products and coordinated local farmers; SABMiller, in turn, was able do what it does best: make beer profitably. 

While celebrating this December wherever you may be, allow your discovery skills to roam, observe your new surroundings and unleash your associational thinking – for you never know what innovation might crop up in the coming year.

 - Fin24

*Fin24 user Jarred Myers doubles as a columnist. Views expressed are his own.


sabmiller  |  economy  |  alcohol
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Three cheers for Thuli

2014-09-01 07:50

 
 
 

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