Distributors and transporters working with one of the country’s largest brewers say they are teetering on the edge, casting a shadow on BGI Ethiopia’s supply chain and market share.
Represented by the BGI Agents Association, the distributors and transporters have been caught in a fruitless back-and-forth involving transportation tariffs with BGI executives over the last year, according to documents obtained by The Reporter.
The tariff currently stands at less than 0.10 birr per kilometer for every crate of product based on an agreement from several years ago – a rate the Association decries as outdated following the massive hike in fuel prices witnessed over the last couple of years.
The Association has been requesting the tariff grow to between 0.16 and 0.18 birr in light of skyrocketing fuel and maintenance costs.
The proposed tariff is also lower than the industry standard 0.24 birr.
Contracts signed between BGI Ethiopia and the Association stipulates that “the distributor shall take delivery of beer containers at the depots of delivery and shall return the containers to BGI at the said depots. Moreover, the cost of transportation shall be borne by BGI based on a transportation agreement signed with transporters.”
However, the distinction between ‘distributors’ and ‘transporters’ is blurry as the distributors often act as the transporters using their own trucks.
The Association began reaching out to BGI Ethiopia executives as early as February 2023 to arrange meetings for a discussion on a potential tariff review. A series of emails obtained by The Reporter reveal the Association was under growing pressure from the rising cost of fuel, spare parts, and lubricants for its cargo trucks.
According to the documents, management at BGI Ethiopia repeatedly promised a tariff review and renewal before June 2023.
An email to the Association from William Benn, supply chain director at BGI Ethiopia, on June 2, states the brewer is “analyzing the subsidy rates versus the market rates” and asks if a previous email from the Association was “regarding transport tariffs, or something else?”
Despite the lack of a tariff revision, BGI Ethiopia and the Association entered into a new two-year contract agreement the following month, in July 2023. However, the agreement was not followed by a new tariff.
In October, 5A Law Firm LLP (the Association’s legal representative) issued a notice to BGI Ethiopia.
“If BGI fails to respond within five working days, BGI Distributors and Agents Association will not be responsible for any distribution disruption or cessation of activities of transport and BGI Ethiopia will be responsible for any loss incurred by distributors,” states the notice.
The attorneys at 5A pointed out that although the Association had been requesting a tariff revision for several months, BGI Ethiopia execs either failed to accommodate the requests or were unavailable for discussions.
Nonetheless, the distributors and transporters did not see through the five-day ultimatum and are, at present, continuing their partnership with BGI Ethiopia.
“We refrained from boycotting because we do not want BGI’s market to be overtaken by other breweries,” said a member of the Association’s management.
The documents exchanged between the two parties also reveal potential impacts on BGI’s market share. The Association claims market share is shrinking as distributors grow less enthused about supplying BGI products until their demands are met.
However, anonymous sources informed The Reporter the decline in market share is due to the closure of BGI’s Raya brewery in the Tigray region, which has been rendered non-operational by two years of civil war.
An email to BGI execs earlier this month states that agents are running out of stocks as there is no new supply coming in from factories.
“It will be hard to get the market share back if this continues. We have been worried . . . have constantly tried to communicate this issue to top management for well over five months now,” it reads. “The unprecedented rise in the cost of transportation continues to significantly affect the operational capacity of transporters.”
Herve Milhade signed on as CEO of BGI Ethiopia last year, and has reportedly been spearheading a restructuring at the company. BGI Ethiopia has floated an Expression of Interest for distribution service providers over the last two weeks.
“The company is trying to oust and replace us with new distributors. This is unacceptable. Existing distributors have collectively invested over 6 billion birr in warehouses, trucks and other equipment necessary for distributing BGI products. If BGI Ethiopia replaces us, we will take legal action,” said Sintayehu Gebresillassie, general manager of the BGI Ethiopia Agents Association.
Herve, William Benn, Supply Chain director at BGI Ethiopia and other officials of BGI Ethiopia declined from reflecting on The Reporter’s requests for comments.
In an internal communiqué addressed to ‘all BGI Ethiopia employees’ by BGI Ethiopia management this week, the company stated it is still working on a new transport model that will benefit 78 percent of its “total distributors.”
“The old system has created an issue by complicating our operation with multiple product delivery points, rate differences among distributors, delays in payments, and lack of clarity. This change, once aligned with all distributors, will be applied across the country,” reads the notice.
BGI Ethiopia is one of the country’s oldest breweries and has expanded its product portfolio since its acquisition by the French Castel Group. St. George, Castel, Doppel, Zebidar, Raya, and Meta are among the brands of beer produced and sold by BGI Ethiopia. Castel Winery is also a major part of BGI’s business in Ethiopia.