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The executive that values virtuosity

The executive that values virtuosity

Diageo, the owner of internationally renowned brands such as Johnnie Walker, Bailey’s and Smirnoff, among many others, just turned 20. It was back in 2012 that the multibillion dollar global conglomerate decided to have a strong presence in Ethiopia by wholly acquiring the now 50-year-old Meta Abo Brewery from the then Privatization and Public Enterprises Supervising Agency at a handsome fee of USD 225 million – a record fee at the time. After five years of operations and a whopping USD 100 million expansion, Diageo is thriving in Ethiopia. And at the helm of the Ethiopia division is Baker Magunda, who has been working with Diageo for the last 17 years with the last two years here at Meta Abo Brewery SC, taking over from the erstwhile Managing Director, Francis Agbonlahor, who hails from Nigeria. Before his Ethiopia job, Magunda worked at Diageo's other African subsidiaries in various positions including Marketing and Managing Director of the company's Ugandan subsidiary and General Manager in the Kenyan and Cameroonian divisions. His role has allowed him to work in eight African countries including Ethiopia. In an exclusive interview with Bruh Yinunbelay of The Reporter, Magunda says that Diageo is committed to Ethiopia and believes it is the right decision to be here. In addition to discussing the introduction of new products, challenges and prospects, he also shared his business philosophy and advocates responsible alcohol consumption. Excerpts:

The Reporter: Diageo is one of the major multinational companies operating in Ethiopia. Would you walk us through your operations here and the overall business environment with specific focus on the beer sector?

Baker Magunda: Diageo brands like Johnnie Walker have, for many years, been distributed in this country through a third party distributor. The first formal agreement that we signed with distributors was in 1955. Of all the brands Johnnie Walker has been the most successful. So we have a representative office that represents Diageo Great Britain in Ethiopia. It is a small team of 15 people whose role is to market the brands; represent the image of Diageo; support the distributors and importers in building distribution systems for the brands that they import and give them guidance and standards of how we like those brands to show up for the consumers. We operate that unit as an independent unit from Meta. The employees of that company belong to Diageo office in Ethiopia. They have a general manager for that business who also doubles up as a trade representative for Diageo. The other is where we manufacture our beer in Sebeta where we have a network of distributors who we appoint through contracts. We also have a huge team of field service people who support them in the execution and activation of those brands. So that’s how we structured it.

My nearly two years here in Ethiopian have been exciting. From the point of the talent I’ve met in Ethiopia to the things we’ve been able to do together and just being part of the growth story of the country, it has been exciting. Fortunately, our business is doing well in spite of all the challenges. The owners of the business are feeling good about our participation in Ethiopia. Our president came to visit us two weeks ago and reviewed our strategy for the country. He is committed to further investment in the country. We have a lot of young talent coming through and we are very excited about that and export that to other countries. We launched Guinness recently, which is fantastic. As we all know Guinness is one of the most iconic brands in the world so being part of that story is fantastic.

We remain excited and committed to Ethiopia. We believe it is the right decision to be here. The economy is growing; the population is big which is good; we see a lot of young people coming into branded goods and the retail environment is growing quickly. We do support and like the national strategic plan which says soon we will be entering a phase that is private sector-led growth. So at a macro level everything we need to look at to consider going to a country are right. When you look at the beer sector, it is growing quite quickly in Ethiopia. Part of that is new wealth is being created and more people are getting into regular jobs and therefore have a steady income. The other reason is many young adults are coming of age to choose some of the brands. The third reason is these multinationals that you talk about coming and buying the breweries. They increase production capacity to fill up the supply challenges that were there seven or ten years ago. So on account of dynamic economic growth, a population that is getting into legal drinking age and the supply that is being improved by all of the players, I think, are the three main factors that are driving the current growth and we are excited about that. Our view is that it is going to remain as a high-growth market for the next three to five years. We see a lot of movement in the marketplace. We are hearing about acquisitions and new investments coming through. And we are excited about that because we are successful in places where competition has been even and fair. Our brands do well when there is a lot of fair competition in the marketplace. So if we maintain the level of competition we are seeing now, consumers will benefit from the quality of services and brands they get from us.

You just mentioned that you launched Guinness. What else do you have in store for Ethiopians? Are there other products that are going to be launched whether it is beer, non-alcoholic beverage or spirits?

As you probably know, Diageo globally is the leading premium spirits company. Our strategy in Africa is we would like to be a total alcohol beverage company. What that means is that we will continue doing what we do in other countries – produce and distribute spirits; produce and distribute beer and produce and distribute non-alcohol brands wherever we see the opportunity. In Ethiopia so far we have only had beer and non-alcoholic brands. Last year we launched a second non-alcoholic brand after Malta Guinness called Kuru. The intention there is to respond to the obvious opportunity that we saw for non-beer drinking occasions, non-beer drinking adults and non-beer drinking populations, for various reasons. Within the beer category, we still see there is an opportunity for expanding our portfolio and we are working on that. We have a fulltime innovation team of six people whose role is to always go around and see opportunities that exist in the market and determine how best we can respond. Obviously, for some of the innovations we are working on I can’t discuss now for confidentiality reasons but we have lots of projects that we are working on at the moment. Some are ready to be launched while others are possibly two years or so away from launch. So we have projects which are a mix between beer, non-alcoholic and spirits brands.

Talking about innovation, Meta introduced a beer brand a couple of years ago called Zemen which turned out to be a flop. What happened there? And what is the reception Guinness has been getting so far?

Across the world most innovations fail while few are successful. But that should not scare you from innovating. So we launched Zemen three years ago and it didn’t work well. The proposition we were putting forward, I think, was too early for its time. We’ve learned from that. We have since launched four brands – Malta Guinness, Azmera, Kuru and Guinness. All are doing very well. For you to be confident that your innovation brand has been well-established, you need three years. The only brand I can say we do think has been successful is Malta Guinness. For the others that are under three years we need to wait and see.

Within this market, all of us are learning the consumer taste profile. You go into a new market with what you know and some things could fail. We learn about the real consumer palate; what Ethiopians are looking for; what inspires Ethiopians to choose the brands they choose and what happens when there are many offers. I’m seeing fashion shops opening up and new cars on the streets every day. So, as consumers have all these things beyond the beer category the most important thing is remaining on the shopping list. In addition, this is a very youthful country and populations in youthful countries tend to flirt with brands much more than mature population like Europe and America. So our challenges are remaining relevant; how we deliver the value proposition that makes our brands exciting and being accessible in such a big and rural country.

Do you plan to export?

Export is interesting and is one of the things we committed to government when we acquired this business. But as you know you have to be competitive to export to other countries. So how do you remain competitive? Beer as you know tends to be a national brand so you really have to have a very unique proposition. We export Meta to places where there are a lot of Ethiopians like Italy, Canada and a bit to the UK but not as much as we’d like to. And the reason we’ve held back from being aggressive in exporting Meta is because we don’t have enough to sell in the country at the moment. We sell everything we produce and therefore we want to keep our commitment to Ethiopia fast. We are at the moment working on options on how to expand our capacity and once that comes through then we can come back to that export opportunity. For non-alcoholic brands, we export a bit of Malta Guinness to Djibouti but we control that as well. The reason for that is that returnable glasses are difficult for export business. And that is the other are we are looking into and how we can optimize that.

So what is your current market share? Industry analysts say that BGI is leading the pack followed by Heineken and Meta, respectively. Do you think the ranking is correct?

I don’t know the accurate numbers but we think we are number three at the moment. We are growing nicely so they should watch out (laughs).

One of the issues constantly raised in the beverage industry is that of bottles. What sorts of challenges exist in that regard?

When we bought the breweries from government, you might remember that all the brewers had similar bottles. They had a generic industry bottle. So all brewers produced and distributed all their brands in one similar type bottle. Over the last four years or so innovations have moved away from the generic bottles into newer ones because everybody is looking to make their brands unique and personalize the offers that they make to consumers. So as you have bottles that are unique to yourself, you are in better control of your distribution network and he identity of your brands and how it shows up to consumers. That is one fact.

Between when we bought the breweries to now – both on our side and our competitors’ – we are moving away from the generic bottle. There is a shift and soon everyone will have their own set of bottles. The second cycle I suspect that is going to happen is brands will move away from returnable glass to the non-returnable ones. The issue here is that you drive one way with a full glass then you return back with an empty glass filled with air. This is a challenge in all developing markets. The other challenge, which is difficult for all of us, is the rural nature of Ethiopia. You don’t have big cities with many populations. You have small cities that are located miles behind hills and valleys and that makes it difficult to get your glass as quickly as you want.  All we seek is – like everywhere else we operate in the world – there needs to be fair and even competition and allow consumers, who we fight for, to make their choice on account of the propositions we put before them. That’s how we know how to win. We don’t know how to win any differently.

What is Diageo doing in regards to capacity building, nurturing young talent and guiding them to leadership?

We’ve got four pillars that we have repeated many times. If these four pillars are working properly, you are successful as a business wherever you go. Out of these the fourth pillar is building the capacity and capability of nationals. It is our growth strategy in this country. You have to accept that the private sector is a new thing in Ethiopia. And because it is, you don’t have too much pool of readymade people to hire. So you have to create. Our industry is a fairly new industry which is becoming more automated and sophisticated. So even if you were to find them they are not as updated as we want them to be so we need to teach them. For these reasons, we think that we are better off creating our own leadership than trying to buy them off the market.

So our human resources strategy has got the following three packages. First we want the majority of our leaders and our employees to be talent we build internally and is tailor-made. We have a behavior and leadership standard in Diageo, which is different from other people, that we need to embed in our people. The second is we borrow some talent. For instance, I am from Uganda but I’ve been working in other markets. Here in Ethiopia there are 11 of us who are non-nationals. We come for a short period of time and pass the experience we have as we groom and nurture the talent here. The third is we buy some. There will always be one or two bright people who you can buy and say that person can do the kind of job I have. The third is the smallest of our strategy and the most expensive. Because of the competitive nature of the industry, it is now becoming more and more expensive to buy people with experience.

So we have what we call our graduate program where we hire a lot of graduates every year; between a dozen and 15. We know we will always lose some. That’s because they are good. We hire very good students from universities and take them through this three year fantastic program. We move them across the continent and sometimes Europe. By the time they finish the program they become very marketable. So there will always be people who are prepared to nick them and take them. That does not bother us because we believe that if we create a pool of professionals quickly across the industry, we all win. Eventually, the floating around and the switching of employers will reduce, because the persons who will have bought you have already groomed their own people. So yes we have lost some but we are not worried about that.

This year we have taken in a big number. We have taken in the first 10 and are in the process of finalizing the addition of another ten. The good news is that those who first came in when we came here have all now finished the program and have been appointed into very good jobs; some into engineering, packaging and all over across the business. So in the next two to three years a real bunch of strong Ethiopian leaders will be running the business to the standard and conduct that Diageo expects of anybody who works for Diageo in any country. So ones we’ve achieved that level, then the next level will be switching them across markets to enrich their experience.

One of the major challenges here in Ethiopia is corruption, which exists across industries including yours. How do you deal with that?

It is very difficult. It’s one of the things we discuss in our brewers association. Corruption is not unique to this country. It is a cancer that is across all the countries that we work in – developed and developing. But we do think that the reason it manifests itself in a much bigger way in Ethiopia is because private sector is new and most of the people that are coming into the private sector tend to focus on material gains. For instance, young people who see themselves joining private companies like ours have acquaintances in government and business and for some reason those acquaintances make a lot of money in these places. So what I do is I tend compare my lifestyle to others in the marketplace that are in government or in the export business and are living a better lifestyle than myself. So it is that comparison that leads to corruption.

The other facet to this is that the control systems in most of the companies that we are setting up or we acquired are not as strong as they should be. So every time your internal processes are not very solid and very strong, people will always find ways to exploit them and do something wrong. The final aspect is role modeling in the community where people grow up. There are not too many role models who do things right. Doing right is not an admirable virtue anymore. I think it is a crisis that we have across Africa. Unfortunately, people at all levels of leadership across Africa do not exhibit the virtues that young people can look up to and say that doing the right thing, having integrity and being ethical is something I would like to role model.  So what are we at Diageo doing about it? We are strengthening our processes. We are automating almost everything in our financing system, our production system and our procurement system so that we take away human interventions which create a bit of temptation. We are also strengthening our ethical leadership standard. We have a very stringent code of conduct in this business that we are embedding. We send our good leaders into communities and universities to role mode what we think doing right can do for you. We encourage our leaders to serve in charity boards and give weekend speeches to university students. It is going to take a bit of time but the core thing is strengthening your institutions and processes.

What’s your business philosophy?

My personal philosophy is influenced by my purpose in life. I have shared this with all my teams. My purpose in life is to unleash the genius in everyone. That is the thing that makes me wake up every day and that is what I do. I think all of us have good in us but all of us need an opportunity to demonstrate and show that good. In developing markets like Africa, we have a lot of talent and good people; so what those talented and good people need is that help early or at various stages in their life whether in business, private sector or public sector. So working from that purpose, my first philosophy is any business is as good as its people. So I want to inspire people to recognize that they have a lot of genius that they need unleash. I refuse to be tempted by the notion that right comes from the senior leaders and wrong comes from the junior people.

My other leadership philosophy is that private sector actually can catalyze national growth for developing countries in a much more profound way than developed countries. I do feel that running a successful private company has a catalytic effect in the communities we work for obvious reasons. The business we run has got the power to demonstrate what great can be like. We are working in a country where the stock exchange is not functioning; however, stock exchange would eventually come to this country. In that regard, investors want to participate in a company they trust. They should trust the leadership and philosophy of the company and the accuracy and integrity of the numbers that we report. So I do feel our being here helps in the development story of attracting foreign direct investment. The final thing is that we work for a company that has a community program. In some countries it is environmental protection, while in other countries it is education. Here in Ethiopia we have chosen to do ‘Water of Life’. It simply is delivering fresh water to communities that have water hardships. It is something that we are passionate about.

Any last words?

I would like to thank our Ethiopian consumers and partners. The first five years has been a lot of learning for us and we are excited about the partnerships we are creating. We are also very pleased by the reaction we are beginning to see from the Ethiopian consumers to some of the innovation brands. This being festive season, I would like to wish all our consumers, partners and employees Merry Christmas and a Happy New Year for those who follow the international calendar. The key message I would like to leave to everybody who enjoy our brands is to drink responsibly, don’t drink and drive and don’t misuse alcohol.