Wednesday, June 12, 2024
InterviewAnticipating prosperous future despite obstacles

Anticipating prosperous future despite obstacles

Nearly 30 years have passed since Hubert Eze began working for Heineken.
In the midst of the COVID-19 outbreak in 2020, he arrived in Ethiopia to take the managing director position at Heineken Ethiopia. Samson Berhane of The Reporter sat down with Eze to talk about Heineken, the state of the Ethiopian beverage industry in the face of fierce competition, advertising obstacles, a thawing of tensions in the north, and forex constraints.
EXCERPTS:

The Reporter: So how did you find the market? Is it challenging? Obviously, the pandemic has impacted every business. So how has the business been so far?

Hubert Eze: Of course, it has been challenging. Very capable competitors used to be a market of six players; two merged, so now we have a market of five players, and they are very capable competitors, and that’s what brings the excitement when you compete amongst each other. The consumer benefits. That is the joy of a capitalist economy where you have people competing against each other. It will always offer more value to the consumers. And fundamentally, the Ethiopian market is a very interesting market. So that is why all of us are here, trying to satisfy the consumers.

You joined at a time when the government started to become strict, especially with regard to beer and any other alcoholic products. The government has already introduced the new excise tax proclamations. How has that impacted you? Have you been forced to cut some production because of the excise tax?

The impact of the excise tax proclamation in 2019 was significant. The volume of the industry went down significantly. So, the impact of volumes between 2019 and up to the end of 2020 is not only COVID; it’s about three things: COVID-19, the introduction of the black market, occurred when the government ordered the alcohol industry to stop advertising on television, radio, and the excise tax. So, of course, it has impacted a lot of players in our industry, and the industry as a whole lost significant volume.

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Consumption also slowed down, and it also impacted other parts of the economy, like the production companies. Even the newspapers and magazines that normally get advertisement inserts from an alcohol business were impacted. However, we believe that this is in the best interests of the country and consumers. We at Heineken always preach responsible consumption, and we are very law-abiding, so even though it has impacted us, we obey the laws of the country and believe that if people consume responsibly, it will be better in the long run for everybody.

Can you tell us how much Heineken has invested in Ethiopia thus far? How much capacity do you have in terms of hectoliters? Which Heineken product is the most consumed?

Heineken has invested significantly. We entered through the acquisition of Harar and Bedele breweries, and then we built Kilinto. So all in all, in Euros, we’ll be looking at between EUR 500 and EUR 600 million over time, including all the improvements and investments we have made to modernize Harar and Bedele. There are quite a few investments we have made.  Of course, we have our international premium brand Heineken and our flagship mainstream brand, Walia, all of which are important and contribute very strongly to our total volume.

Recently, we have seen one major player in the market exit from Ethiopia. So keeping that in mind, how does Heineken plan on surviving through all these difficult challenges, and what is the return and profit of investment in Ethiopia?

Heineken is present across Africa, and we know how to operate in Africa. When we come to Africa, we don’t look for instant gratification. We don’t look for today’s profits. We are always here and have been here to invest for the long run. So, we believe in the fundamentals of the country, we believe in the youthful population, we believe in the growing population, and we believe that the economic fundamentals are correct; that’s why we’re here. We think about the future with a very strong hope that it will be better. That is how we operate, and if you are going to come into Africa, you need to have that mindset. We say that Heineken is in Ethiopia for the long haul.

So, how are you coping with the forex shortage? Have you been able to repatriate profit thus far since you have joined the Ethiopian market?

Repatriation of profit is the challenge. So, you see reinvestment in the business. Of course, there is a forex shortage. By the way, we always wish that we could have some forex, so it’s really scarce, but we approach it through a structured local sourcing program. The local sourcing program has enabled us to significantly increase our share of local raw material inputs into our production. So, you reduce the impact of forex, and every now and then, we wish we could get approval to repatriate and pay a small dividend.

As you mentioned, Heineken has a good volume of local sourcing. How much of your input comes from the local market? Can you tell us how much it has increased since you entered the market?

In the last two years, it has more than doubled, and we are talking about having greater than 70 percent of our raw material inputs come from local sourcing. There are about 17,000 farmers across Ethiopia and a farm in Bale. So, that is quite a significant chunk.

Can you tell us how many jobs you have created so far and what kind of management philosophy you follow, especially in Ethiopia, where finding skills and manpower is difficult? Also, many businesses also complain that our work culture is poor. How has that challenged you, and what kind of management philosophy are you adopting here in Ethiopia?

The success we have as a company actually comes from the people. We feel the power of the people. About 70 percent of my management team are Ethiopians. So, when you say that people talk about the work culture of Ethiopia, I don’t know where that’s coming from because I have capable people here that love Heineken so much and invest their time to make the company successful. So of course, with the very strong growth of the economy, talent will be scarce. But companies and organizations that have an interest in Africa are actually interested in how much investment they make in the people to grow and develop them.

Heineken does that with real passion. We believe strongly that talent management will make a difference in the future. So, every year we go to the universities, we get the best students, and we bring them in here to our management training program and start developing them. We will lose some of them to competition, but it will be a contribution we make to the economy, and some of them will stay, and our front end will always be filled with talented, intelligent people working for us. The big difference we have made in this market in the last two years is that we felt the power of our people who go out to the market in the breweries with commitment, passion, and love for the company. That is where we made a big difference.

So the management philosophy across all Heineken companies is the same, even in Ethiopia?

Yes, everywhere, we believe in the power of the people.

You mentioned earlier that the large breweries in Ethiopia are now focusing on reinvestment because of the challenge of repatriating profits from Ethiopia. Is there any interest from Heineken to acquire other plants or to expand in the future? Is there any other project in the pipeline as well?

We have an interest in expanding in the future, but to acquire another one, no, not immediately. But of course, as the market is growing and our capacity is being utilized, we are, like I said, here for the long haul. So, we’ll invest more to make sure that we have enough capacity to supply the market. Yes.

Is the plan to only invest in the brewery market, or do you have any interest in working in other areas of the beverage industry?

Long-term, we are a beverage company. We are open to opportunities in the market. So, we believe that there are opportunities beyond beer. It’s part of our strategy to explore those opportunities beyond beer, and if we see the opportunity, we take it.

How about the backward linkage? I mean, in the past, I have heard that some breweries have an interest in investing in the malt sector and also getting involved in the farming sector to source sustainable inputs, if there is any change from the government’s side to allow such investment. Is there any interest from your side or any policy change that you would like to suggest in this regard?

There is no immediate interest.

We have a very strong partnership with our farmers. Working with IFC, the government department, we have a very solid relationship now with Sofi Malt. Our local sourcing management is so talented, and they work well with the farmers, so we have no interest in that.

In the past, you have suggested farmers adapt malts with a better yield. Is there any advice in this regard, maybe to use other types of crops with a better yield?

We believe in barley as a product and as a major input for beer, and we have worked with farmers to increase the yield. We believe that profitability and wealth creation for the farmers will not come from price; it will only come from increased productivity because you need to be competitive internationally. So, if you normally get 10 tons from one hector and suddenly start getting 20 tons from one hector, your income will skyrocket. We’ll continue to invest in raising productivity, increasing yield per hectare for the farmers, and scanning the environment to make sure that if opportunities come, we take them.

I heard that sometimes there are some issues with the cooperatives because the price is set by the unions. Is there any problem regarding the price? Are you okay with the current situation, or is there any recommendation that you would like to give in this area?

When you start something new, you have all kinds of start-up problems that will challenge the status quo. So, there are all kinds of challenges, not only about how we determine the right price. It’s part of the start-up issue, and now we feel that over time, because it’s an open market, it will stabilize.

It’s not only the price, but also the logistics of it, the movement of it, the cleaning, and improving the quality of the value that we have coming out of the funds. So, there are quite a lot of teething issues. But the most important thing is that we’ll have partners in our creative program that understand the complexity of this, partners from the Ministry of Agriculture, IFC, and Sofi; they understand the technicalities of it, and they will continue working on it to improve it.

The most important thing about local sourcing is that, due to its capability and capacity, it is quite challenging and takes time because, remember, these farmers have a traditional way of farming, and what most of the program is doing is not only teaching them an improved way to farm but also giving them better seeds to improve their yield and be more environmentally friendly.

The other question I have is regarding marketing. Since 2019, you have been banned from advertising your products on broadcast media outlets, but lately, I have seen that you have shifted to social media like TikTok, and it looks like the advertisement work is even more successful than the usual way of advertising on media outlets. Can you tell us about that?

We explore a lot of mediums to get to our consumers, and digital media is one of those, and with the population of the country quite large and the increased access to the internet through digital phones, it’s picking up. But the reach cannot be compared with traditional media reach. So, it’s not as successful, and I don’t think in the near future that it will be as successful in Ethiopia because digital phone penetration is still limited.

So, do you recommend the government maybe lift the ban?

Well, I recommend that the government do what is right for the country. There are all kinds of reasons why the government should reconsider it and maybe bring more self-regulation in and really manage it. But we believe that the government knows what its population wants, so we do the right thing. Our role as Heineken is to always obey the law of the land.

Let’s talk about the market in neighboring areas. I remember seeing some Heineken products in Asmara three or four years ago. I have also heard that your product is also available in neighboring countries. Is Heineken interested in exporting some of its products to neighboring markets? Or is it difficult to compete with industry players there?

We are actually exporting now. We’re exporting to some of the neighboring countries. It’s not a significant volume, but it’s something we’d like to continue doing because for every single dollar we get through export, we reduce our problem by one dollar.

So, no matter how small it is, we are investing time and effort to do that.

Why aren’t you exporting more? Is it because production costs are very high in Ethiopia, or aren’t you producing more?

You follow the market’s pace, so you seize opportunities while also attempting to create new ones that become more plentiful by the day. It’s a step-by-step approach, so we are developing the market and building on the opportunities, but currently it is not a big volume. We have hope that it will grow.

So, it’s not related to its production cost, because I heard that it is expensive in Ethiopia?

No. Production costs are very high now because of supply chain issues, and the impact of COVID and all kinds of destruction on the world economy is impacting everybody. As a result, inflation is rampant, driving up production costs.

Yeah. So it’s not peculiar to Ethiopia; I think it’s everywhere.

One of the major challenges that I have seen lately is that, especially in the last two or three years, it has become difficult to introduce new products to the market, especially for the brewers. To be honest, we haven’t seen any new product be successful since Walia, I think. So why has it become challenging to introduce new products?

Yeah, we launched a new product last year. We launched an energy mode last year called Bertat. Bertat is a mood-based energy drink, and we feel comfortable about the progress we have made with the brand, which is doing well. At the beginning of this year, in the first week of January, we rolled it out nationally, and we feel happy about what we are seeing. Walia, of course, was very successful at launch, but the dynamics are different, and the media mix is different. So, you may not be able to get those kinds of high-intensity product launches anymore.

Regarding the war in northern Ethiopia, obviously, every beverage company is highly impacted by it because it is one of the major markets.

Of course, the war affected us both in terms of volume and in the way it affected every Ethiopian. We like to sell volume, but we are more concerned about the community, about the country, and about the relationships we have with each other. So, the impact we see is as great as the impact the rest of the community and the country see.

With the current conditions in North Ethiopia, do you see any hope for the future? Do you expect your market to recover anytime soon?

We are excited and happy about the new developments. Of course, we expect the economy to be impacted by the stability and peace we have in the country. We expect that more foreign investments will come, that the whole economy will grow, and that there will be more money in people’s pockets. Without sounding too optimistic, we think the overall market will improve once there is stability. If you know Ethiopia’s history and the crude economic growth of Ethiopia before 2020—of COVID and the rest—you can see that once stabilized, we will most likely return to or begin to see a return to the good old days.

My last question is regarding the environment. There were some issues with your plant in Kilinto about which residents were complaining. I’ve seen reports from state media on complaints from residents that there is environmental pollution. Did you resolve that issue? What kind of environmental sustainability practice have you adopted?

Heineken is a very environmentally conscious company. We’ve invested millions—tens of millions of birr—in waste water treatment across all our breweries to make sure that the effluence, the water we discharge out of the breweries, is up to standard and even better than the standard of the authorities. We always work with the necessary government agencies to make sure that we comply. We don’t just comply for compliance’s sake; we comply because it’s the right thing to do.

If you look at our environmental impacts and the footprints we have, we have a project on about 166 hectares of land in Harar, working with over 11,000 people and community members to plant trees to restore water. It’s a very successful project that now gives the community an abundant supply of water.

The employees of Heineken in Addis Ababa have planted over 10,000 trees in the last few years. Our commitment to the environment is unlimited, and we take seriously anything that will impact the environment. At a global level, we are now making investments to have a net-zero carbon impact in the coming decades. It’s serious.

Last year we had an event with stakeholders on carbon in our facility where we talked to people and explained the program we have. So, we take those things seriously, and there must have been a misunderstanding because we keep everything proper here about what happens in our environment.

Kilinto is our flagship brewery and one of the best in the world for Heineken.

[speaker]
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