EXECUTIVE CHALLENGES IN THE ALCOHOLIC BEVERAGE MARKET. 12

EXECUTIVE
SUMMARY

 

 

Symrise AG is a worldwide
forerunner and known provider of fragrances and flavors as well as basic
materials and substances for the pharmaceuticals, cosmetics and food industries.

 

This report is a market analysis
and identification of business opportunities/potentials of the alcoholic
beverage industry in Ghana. This analysis is to provide adequate information to
Symrise AG to enable it establish a subsidiary in the West African Sub- Region.

 

The report is a culmination of
research work done as an assignment given by the German public listed company
(MDAX) to undertake a market research to facilitate the preparation of a market
entry strategy into the Ghanaian market.

 

The report indicates that Ghana
is a potential market for the alcoholic beverages and Symrise AG can be
successful if it establishes a subsidiary in Ghana to serve the West Africa.

 

Real GDP growth in
Ghana was expected to accelerate in 2016 and 2017 increasing disposable incomes
over the next 10 years and consumers will have access to more money to spend on
essentials as well as discretionary goods like alcoholic beverages.1

 

 

 

 

 

 

 

 

 

 

CONTENTS

EXECUTIVE SUMMARY. 2

1.     INTRODUCTION.. 4

GLOBAL. 4

2.     SYMRISE AG- THE COMPANY UNDER REVIEW.. 4

3.     DEMOGRAPHICS OF GHANA. 5

4.     MARKET OVERVIEW
OF ALCOHOLIC BEVERAGES IN GHANA (IMPORTED, SOLD AND CONSUMED) 6

a.     FOREIGN DIRECT INVESTMENTS AND IMPORTS. 6

b.     SALES. 6

c.     CONSUMPTION.. 7

6.     PRODUCTION, DISTRIBUTION
AND SUPPLY CHAIN STRUCTURE. 8

7.     MANUFACTURING COMPANIES
AND THEIR INVESTMENTS. 9

8.    MARKET
ENTRY STRATEGY.. 10

9.    MARKINGS,
LABELLING AND STANDARDS.. 10

10.      IMPORT
DUTIES AND COLLECTIBLES.. 11

11.      CHALLENGES
IN THE ALCOHOLIC BEVERAGE MARKET. 12

a.    HIGH
TAXES.. 12

b.    POOR
DISTRIBUTION NETWORKS.. 12

c.    COUNTERFEITING
AND UNREGULATED INDUSTRY. 12

12.      MARKET
SURVEY.. 13

a.    Chart 1: Gender Distribution Chart 13

b.    Chart 2: Alcoholic Beverage
Purchasing Point Chart 14

c.    Chart 3: Alcoholic Beverage
Consumption Point Chart 14

d.    Chart 4: Average Money Spent on
Alcoholic Beverage Chart 15

e.    Chart 5: Monthly Household Income
Chart 15

f.     Chart 6: Weekly Expenditure on
Alcoholic Beverage Chart 16

13.      CLASSES OF ALCOHOLIC BEVERAGES IN GHANA.. 16

14.      PRICING RANGE.. 17

15.      CONCLUSION.. 17

16.       REFERENCES. 18

 

 

 

1.  
INTRODUCTION

GLOBAL

The global alcoholic
beverages market was quoted to be of a value close to $1,344 billion in
2015, and is anticipated to reach $1,594 billion by 2022, increasing
at a CAGR of 2.1% from 2016 to 2022.2

An alcoholic beverage
is a drink that has ethanol, popularly known as alcohol, as part of its constituents.
(Zakhari, 2006)

They are grouped into
three:

Beers (contain 5.5% pure
alcohol)
Wines (contain 13% pure
alcohol)
Spirits (contain 40% pure
alcohol)3

 

Most cultures around
the world over the years have traditionally consumed various types of alcoholic
beverage. Nevertheless, alcoholic beverages brewed locally is the most consumed.

 

2.  
SYMRISE AG- THE COMPANY UNDER REVIEW

 

The Symrise Group was
established in 2003 by a merger between the German companies Haarmann &
Reimer and Dragoco which were established in 1874 and 1919 respectively.

Symrise is a global
supplier of fragrances, flavorings, cosmetic base materials and substances as
well as functional ingredients.  Symrise has a market share of 11% as at
2006 and it is one of the world’s largest suppliers in the Flavours &
Fragrance market.

The company has three
(3) segments: 

Flavor, 
Nutrition and 
Scent & Care4

The company’s major
clients are manufacturers of perfumes, cosmetics, food and beverages and the
pharmaceutical industry.

The company has its headquarters
in Holzminden, Germany and has over 90 locations across in Europe, the Middle
East, Asia, the United States and Latin America. In the West African Sub-
Region, it is located only in Ikeja-Lagos, Nigeria5.

However, the company
intends to enter into the Ghanaian market with particular focus on alcoholic
beverages.

 

3.  
DEMOGRAPHICS OF GHANA

 

Ghana is a lower
middle income country with a per capita income of US$1,380 and a GDP of
US$42.69 billion6.

Ghana’s population
growth rate has averaged 2.4 percent per annum between 2010 and 2015 and is seeing
a gradual decline. 7
The working age population is between 15-64-year-old and has an average growth
of about 3 percent by 2010. It however declined slightly to 2.5 percent in 2012
(United Nations, 2013).

The population of
Ghana in 2017 was estimated to be 28,409,576 people. Ghana has a young age
structure, with approximately 57% of the population under the age of 25. 

Ghana population
density is 119.1 people per square kilometer (308.5/mi2) as of
November 2017.

4.  
MARKET OVERVIEW OF ALCOHOLIC
BEVERAGES IN GHANA (IMPORTED, SOLD AND CONSUMED)

 

a.      FOREIGN DIRECT INVESTMENTS AND IMPORTS

Ghana is a net
recipient of Foreign Direct Investment (FDI) in the beverage sector.  Ghana recorded a total of 26 FDI projects
into Ghana’s beverage sector between January 2003 and September 2015. 

According to FDI
Intelligence 2016, the United States was the leading source market for Ghana’s
beverage sector investments with 7 investment projects (USD3.1bn) from 2003 to
September 2015, followed by the United Kingdom and South Africa respectively.8
Ghana currently imports 60 million litres of ethanol yearly.9

 

b.     SALES

Alcoholic beverage sales
are anticipated to see very solid growth in Ghana from 2014 to 2020 (forecast),
reflecting both the country’s strong macroeconomic outlook and good consumer
spending momentum over the forecast period.

Ghana’s beer sales
showed the largest sales of beverages, rising from 226 million litres in 2012
to a forecast 327 million litres in 2020.

 

 

Barring beer, red
wine is anticipated to achieve the biggest alcoholic beverage sales in Ghana
over the five-year forecast period to 2020 increasing by 6.7% from 16.8 million
litres in 2016 to 21.8 million litres in 2020, followed by white wine growing
by 6.6% (BMI, 2016).

 

 

c.    
CONSUMPTION

 

Beverages in Ghana
are very indispensable during social functions. From somber occasions to joyous
ones, beverages are used for traditional rites and proclamations. When a child
is born in the Ghanaian setting, drops of water and alcohol are put on the
child’s tongue to show sincerity. At funerals and durbars, libations are poured
as part of prayers made to the ancestors and gods of certain communities and
ethnic societies.

Ghana’s population of
over 24 million, provides an increasing market for alcoholic beverages
estimated at $600 million. Estimates in 2014 indicated that the beverages
sector contributed approximately US$125 million to the GDP of Ghana. This
indicates the prominence of the industry.10

Research by the Ghana
Statistical Service (GSS) revealed that the prevalence of alcohol consumption
in Ghana was 26.7% with men having a prevalence of 35.8% and women of 17.5%. 11

Among men, the lowest
consumption of alcohol (ie 14%) is in the Northern Region.12

A cross- sectional
study carried out on the consumption and drinking frequency of alcoholic
beverages among women in Ghana in 2015, revealed that 18% of 4,916 women aged between
15 and 49 drank alcohol but it was not frequent. The consumption increased from
7% in the age group 15-19 to 26 % in the age group 45- 49. Women who were
employed were as twice as likely to drink alcohol (20 %) as compared to unemployed
women (10%).13

 

In Ghana, prevalence
of alcohol use in the general population was 26.8% in 2015 while it was 36.7%
among men and 17.5% among women. Prevalence was found to be highest in the
Upper West region 37% followed by the greater Accra region with 32.5 %.14

A WHO report revealed
that adult alcohol consumption in Ghana with regards to the types of alcoholic
beverage was 27% for beer, 5% for wine, 2% for spirits and 66% of several other
alcoholic beverages including beverages made from sorghum, maize millet rice or
cider, fruit wine and fortified wine (WHO, 2016).

 

The popularity of the
local alcoholic beverages is based on:

Intrinsic herbal
extract component and medicinal value
The use of local
flavourings (ginger, cinnamon, ginseng, strawberry, vanilla, chocolate and
lemon)
Its claim of
improving sexual potency (as an aphrodisiac)
For relaxation
For identification
with a social class or status

6.    
PRODUCTION, DISTRIBUTION AND SUPPLY CHAIN STRUCTURE

 

approximately half of
the value of the Ghanaian alcoholic beverage market comprises sales of beer,
which is the single most popular beverage among drinkers.

The business of
distribution is closely vertically integrated with the manufacturing process,
primarily because of the integrated distribution model chosen by most market
leaders in the country.

Distribution is
mostly done using extensive first-line distribution network, which distributes
beer produced from breweries to depots within the country.  

Those that are not
shipped through these depots, are under the control of independent distributors
(also called appointed distributors), who obtain their products from breweries
and transports it to their own depots and onwards to wholesalers and retailers.

Figure 1: Source: Open Market Survey

7.  
MANUFACTURING COMPANIES AND THEIR INVESTMENTS

 

Ghana, in recent years
has gradually metamorphosed into a key consumer of beer and one of the biggest
beer- consuming countries on the African market. This is of course propelled by
the increasing economic momentum of the country’s formal sector.

Ghana, however still has
a relatively low per capita beer consumption of 14.2 litres annually of by
regional standards.15

Kasapreko, an indigenous
alcoholic beverage manufacturer, which was previously an informal brewer has
formalized their business and has joined and intensified competition between
the local and multinational beer companies. The company in 2012 acquired a USD
30 million bottling plant and also commissioned a USD 70 million factory in
2015 to expand its activities in the region.

Beer multinational
companies now produce low-cost beers for the domestic Ghanaian market and are
increasing their footprint rapidly to meet demand. SABMiller is known to have
grown its market share by a whopping 48%, up by 20 percentage points in 2010.

The USD 100 million
uplift of the Accra Brewery Limited’s (ABP) manufacturing infrastructure in
2015 has doubled its production capacity and this signals a long-term strategy
to boost operations in the West African Sub- Region.

 

8.  MARKET ENTRY STRATEGY

 

A
suitable market entry strategy into this highly competitive market is to be
appoint a local agent or distributor who can assist with the establishing and
register an entity, provide market intelligence, assist with local market regulations,
develop consumer demand and attend trade shows, conferences and seminars.

 

9.  MARKINGS, LABELLING AND STANDARDS

 

Ghana’s
General Labelling Rule 1992 of the Food and Drugs Authority (FDA) depicts that
all products imported or produced locally should be bear the following in
English

Name
of product;
Net
mass or weight or net volume of content;
Composition
of content of product;
Date
of manufacture of product;
Date
of expiry of product (or best before date);
Batch
or lot number of product;
Name
and address of manufacturer or agent;
Directions
for use, if relevant;
Any
special instructions for storage, handling; etc. and
Any
pertinent warnings.

 

All
alcoholic beverages are compulsorily to be registered with the Ghana Food and
Drugs Authority (FDA). The agency is responsible for the development and
maintenance of standards and ensuring that goods imported into the country are
of acceptable standards.

 

10.             
IMPORT
DUTIES AND COLLECTIBLES

 

Customs
Excise and Preventive Service (CEPS) responsible for collection of Import Duty.
The advent of paperless port systems has simplified the tax collection process

Sample
of Taxes and Tariffs to be paid for the importation of alcoholic beverages into
Ghana.

Tax
Code

Tax
Description

Tax
Base

Tax
Rate

01

Import
Duty

CIF

20%

02

Import
VAT

VAT

15%

03

Import
Special Tax

VAT

0%

04

Import
Excise Duty

CIF

22.5/25/47.5%

05

Processing
Fee

CIF

0%

06

ECOWAS
Levy

CIF

0.50%

07

Export
Dev. Levy

CIF

0%

32

Network
Charge

FOB

0.40%

33

Net
Charge VAT

NETVATB

15%

47

Import
NHIL

VAT

2.5%

48

NET
Charge NHIL

NETVATB

2.5%

56

IRS
Tax Deposit

CIF

1%

78

Special
Import Levy

CIF

2%

87

Ghana
Export- Import Bank EXIM

CIF

0.75%

 

 

11.             
CHALLENGES
IN THE ALCOHOLIC BEVERAGE MARKET

 

a.  
HIGH
TAXES

 

Due to
the increasing prevalence of alcoholic beverages on the Ghanaian market, there
has been high taxes and tariff imposed on the importation of these products.
This is to gradually shift the cost of alcoholic beverages upwards out of the
reach of the average Ghanaian. Another reason is as a trade barrier to reduce
the quantities that are imported so that local production can be boosted and
patronized.

 

b.  
POOR
DISTRIBUTION NETWORKS

 

Ghana
is still faces challenges with its road distribution networks. The very good
roads are centered around the big cities such as Accra, Tema, Kumasi,Takoradi
and so on.

Most
of the major and feeder roads leading out of the city centers to the country
side are not in poor condition. This makes smooth, timely distribution of goods
quite cumbersome hence the dense population of most manufacturing sites within
the Accra and Tema enclave.

Apart
from roads, the infrastructure for storage, distribution and warehousing of
alcoholic beverages is not streamlines. Retailers can either purchase from
distributors or directly from the factories and this presents a complex matrix
of distribution. This affects the pricing policies also as this cannot be
properly regulated and monitored.

 

c.  
COUNTERFEITING
AND UNREGULATED INDUSTRY

 

Another
major challenge in the alcohol production industry is counterfeiting of the
beverage. This is a challenge which the Ghana Standards Board in conjunction
with the Food and Drugs Authority is doing its very best to contain. There are
unlicensed local brewers producing alcoholic beverages and selling to
unpresuming customers. The concoctions are usually sold at so- called ‘blue
kiosks’ where the very hard liquor and locally brewed ‘akpeteshie’ (80%
ethanol) is sold. It must be noted however, that GSB and FDA are doing their
very best to accost those found breaking the law.

 

One of the approaches the agencies have
adopted is to launch a National
Alcohol Policy Document during the first quarter 2017 to regulate the Production,
Distribution, Sales, Advertisement and Consumption of alcoholic beverages.

 

12.             
MARKET
SURVEY

 

To
practically understand the local alcoholic beverage industry, a market survey
was carried out with 236 participants. These participants were largely
literates, middle- income earners with a stable employment.

 

a.     
Chart 1: Gender Distribution Chart

 

b.     
Chart 2: Alcoholic Beverage
Purchasing Point Chart

 

c.      
Chart 3: Alcoholic Beverage
Consumption Point Chart

 

 

d.     
Chart 4: Average Money Spent on
Alcoholic Beverage Chart

 

e.      
Chart 5: Monthly Household Income
Chart

 

f.       
Chart 6: Weekly Expenditure on
Alcoholic Beverage Chart

 

 

 

13.             
CLASSES OF ALCOHOLIC BEVERAGES IN GHANA

 

a.    COGNAC/ BRANDY

·        
Hennessey

·        
VSOP

·        
Remi VSOP

·        
Martell VSOP

·        
Couvoisieur VSOP

b.    WHISKY

·        
Blue Label

·        
Jack Daniels

·        
Platinum Label

·        
Glen Fiddich

·        
Black Label

c.    WINES

·        
Anfora

·        
Nederburg

·        
Herschels Wine

·        
La Fiole Du Pape

·        
Chocolate Black

d.    RUMS

·        
Barcardi

·        
Capt. Morgan

·        
Malibu

e.    LIQUORS

·        
Bailey’s

·        
Amarula

·        
Bristol Cream

·        
Irish Cream

f.     LOCAL

·        
Akpeteshie

·        
Millet Beer

·        
Corn Beer

·        
Palm wine

 

 

14.             
PRICING RANGE

 

Local
beers                           GHC 5- 10

Imported
Beers                     GHC 6- 15

Imported
Spirits (per shot) GHC 5-10

 

15.             
CONCLUSION

 

Ghana
is a diverse country with diverse alcohol consumption patterns. Different parts
of the country have different drinking practices. As alcohol is a state
subject, the state is in the process of provides a holistic legal provision
that govern alcohol and the alcohol industry, leading to uniformity of this
budding industry.

The
favorable demographics, rising disposable income levels and greater acceptance
of alcoholic beverages in social circles greatly improves the outlook for the
Ghanaian alcoholic beverage industry to keep growing and expanding.

An
investment into the sector by Symrise will therefore be a viable business
strategy which will yield benefits in the long run.

 

1 The FitchGroup Company, Ghana Food & Drink Report, 2015
.

2 ‘Alcoholic Beverages Market by Type
(Beer, Distilled Spirits, Wine) and by Distribution Channel (Convenience
Stores, On Premises, Retailers, and Supermarkets) – Global Opportunity Analysis
and Industry Forecast, 2014-2022’, 2017, p. 250.
.

3 Nana Yaw Oti Boateng, ‘Alcohol
Consumption among University of Ghana Students on Legon Campus’ (University of
Ghana, Legon, 2016).

4 Symrise AG, ‘Symrise Website’, 2017
.

5 Symrise AG, ‘Symrise Website’.

6 World Bank, ‘World Bank’
.

7 United Nations, ‘United Nations
Country Profile_ Ghana’
.

8 Wesgro Cape Town & Western Cape
Research, Ghana Food and Beverages Sector
(Johannesbury, 2017).

9 Ghana News Agency, ‘FIRST ETHANOL
PLANT TO BEGIN PRODUCTION’, 2016
.

10 Oti Boateng.

11 ICF Macro, Demographic and Health Survey, 2009.

12 ICF Macro.

13 ICF Macro.

14 Anthony Tampah- Naah and Samuel
Amoah, ‘Consumption and Drinking Frequency of Alcoholic Beverage among Women in
Ghana: A Cross-Sectional Study’ (University of Development Studies, 2015)
.

15 Sulaima Isma-iL and Bernard Boachie-
Danquah, Ghana’s Mergers and Acquisitions
Report 2017, 2017 .

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