How SABMiller is Making Green Beer at the Bottom of the Pyramid
In the developed world, brewing giant SABMiller, whose global brands include Miller, Peroni, Grolsch and Pilsner Urquell, competes with the even bigger brewing giant Anheuser-Busch InBev, which owns Budweiser, Beck's, Stella Artois and Michelob. They're the Pepsi and Coke of beer, which, by the way, is the world's third most popular drink, after water and tea.
But in Africa, SABMiller's biggest competitor is the guy (or gal) who makes beer at home. That's a big reason why the company, which had revenues of $28 billion last year, recently began selling Impala, a beer made from cassava, in Mozambique. Similarly, for about a decade, SABMiller has been selling Eagle Lager, a beer brewed with sorghum, in Uganda.
Using local like cassava and sorghum crops appeals to local tastes, supports local farmers and keeps costs down so SAB Miller can price its beer lower to compete with homemade brews.
"By using locally sourced raw materials, we can make high-quality, but affordable products for consumers who would otherwise be drinking informal or illicit alcohol. So the long-term commercial opportunities are significant," Andy Wales, SABMiller's global head of sustainability, told me in an email interview.
Beer at the bottom of the pyramid, you could call it.*
It's fitting that SABMiller is expanding and experimenting in Africa. The company was founded in 1895 in South Africa, and its shares are still listed on the Johannesburg stock exchange, as well as in London. Nevertheless, most of its agricultural raw materials -- beer is typically made from barley -- have traditionally been imported. At the same time, people across Africa are drinking up to four times as much cheap home-brewed beer than what they are buying in the formal market, Wales estimated
To change the dynamic, SABMiller began in Uganda in 2002 to make Eagle Lager from sorghum sourced from smallholder farmers. It now accounts for about 50 percent of the company's sales in Uganda, and generates income for about 9,000 farmers, Wales said. Since then, Guinness and Heineken began brewing beer from sorghum in Ghana and Sierra Leone.
SABMiller then looked at cassava, a widely grown, starchy, drought-resistant root vegetable. The trouble with cassava is that, once pulled out of the ground, it needs to be processed or cooked right away; within a couple of days, the tuber turns black and is unpalatable and useless. Cassava has little value as an export crop.
Only after SABMiller got access to a mobile processing unit made by a company called DADTCO (Dutch Agricultural and Trading Company) did the cassava beer become practical. "We can buy the cassava directly from the farmers and process it in situ, before it degenerates, and take out much of the bulk," Wales said.
"Africa's agricultural potential is enormous, but currently under-exploited," he went on. "By creating market opportunities for subsistence farmers in our value chains, we are able to increase their productivity, allowing them to feed their families and generate an income for the first time." The company said it is buying cassava from more than 1,500 smallholders.
Local sourcing has clear benefits: lower inventory costs, a shorter and more visible supply chain, and no worries about import duties or worse. (Nigeria tightly restricted imports of barley malt in the 1980s.) Then again, managing a supply chain with lots of small farmers is a lot harder than buying in vast quantities from giants like Cargill. SABMiller is getting help from DADTCO, which has 30 years of experience working with farmers in the developing world, and a nonprofit called IFDC that works in more than 100 countries.
So how does the beer taste, Andy? "It's excellent!," he writes, "not too dissimilar from a regular lager. It looks exactly like any other beer -- golden and sparkling with a foam head."
By the way, I hear that bananas are a popular ingredient for home brews in the Democratic Republic of Congo. Could a banana beer be next?
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* The phrase bottom of the pyramid, or base of the pyramid, refers to the world's poorest consumers. The late CK Prahalad wrote a book called The Fortune at the Bottom of the Pyramid arguing that companies could develop new business models to profitably serve these 2.5 billion people and help generate local wealth.