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Features - July 2007



The Bahamas Investor

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Business of brews

Business of brews

Domestic beers create frothy profits for local companies

The Bahamas Investor Magazine
June 27, 2007
June 27, 2007
Jessica Robertson

If local brewers had taken a lesson from history, chances are they would never have gotten into the business. One of the first attempts at a local Bahamian brew, GoldStar, was a dismal failure. Legendary Canadian businessman E P Taylor’s Lyford Cay development continues to attract wealthy residents from around the globe, but his Associated Bahamian Breweries, a subsidiary of his highly successful Canadian Breweries, closed in 1966, just six years after it rolled out its first bottle of beer.

At the time, Bahamian Premier Sir Roland Symonette defended his government against accusations that it had failed to protect local industry, telling the House of Assembly that “the brew, or the flavour of the beer, was not to the taste of the people of this country. That’s the reason they went out of business, and there was nothing government could do.”

Fast-forward 40 years and Commonwealth Breweries Limited is a multi-million-dollar business, government is proving its desire to help the industry continue to develop, and by year end there will be another player in the market.

Commonwealth Brewery
Commonwealth Brewery Limited (CBL) bottled its first brew 20 years ago. Jointly owned by Associated Bahamian Distillers, Autos and Brewers and Heineken NV, the brewery produces Heineken, Guinness and Vitamalt for the local market as well as Kalik for domestic consumption and for export to the United States.

Despite that earlier failure, market analysis in the mid-1980s showed that The Bahamas was indeed ready for a local brewery, emerging as one of the highest non-producing beer-consuming countries in the world.

In March 1987, CBL started brewing Guinness which, until then, had performed moderately in the Bahamian market. Sales of these locally produced bottles of Guinness exceeded expectations, increasing by more than 50 per cent over the previous year’s figures.

When they started brewing Heineken locally, says LeRoy Archer, managing director of CBL, there were similar results.

“There is something about national pride and the fact that we are all proud to have a product that is made with Bahamian hands even though it is an international product based on an international formula and brewed to international standards,” he says.

In its 20 years, CBL has experienced steady growth. Last year, the Nassau-based brewery produced more than two million cases. And this steady growth means more and more money for the public treasury. For every case sold on the local market, government gets $9.

“I’d say we do our part for the local economy. On excise tax for the cases we produce alone, we contribute $18 million a year,” Archer explains, adding that the excise tax on brands not produced locally is $19 a case.

More than 80 Bahamians are directly employed by the brewery, and the company’s recycling programme, which pays $2 per case of Kalik, Heineken, Guinness and Vitamalt empties returned, provides employment for a number of Bahamians. With production consistently hitting the two million cases mark, that means there is $4 million in potential revenue to be collected by industrious consumers.

Kalik: the Bahamian beer
While Commonwealth Brewery has helped establish both Guinness and Heineken on the local market, its very own brew is the one that has secured top spot.

Kalik, the Bahamian beer, was first introduced in 1988 and today, the award-winning brew enjoys 50 per cent local market share.

The first year Commonwealth Brewery exported Kalik, 5,000 cases were sent to England and Florida. Jump ahead almost two decades and they have seen a 1,700 per cent increase in export volume, to 90,000 cases annually.

The Bahamian beer is now found on shelves throughout Florida and along the eastern seaboard of the United States and Archer is working steadfastly on increasing its exposure. “Really sustainable long-term growth is going to have to come from exports to the United States,” he says. “The challenge is our production costs. If we are really serious about exporting, we may have to find a company to brew Kalik under license and handle distribution.”

Not that pricing is always a deterrent. According to Archer, Kalik Gold, their extra-strength creation, is a hot commodity on the high seas. Boaters, he says, pay upwards of $100 a case. That market-driven pricing aside, Kalik is actually less expensive in the United States than it is in stores right around the corner from the brewery. The reason is simple, yet perhaps surprising—government. The $9 Bahamian government excise tax is waived on cases produced for export. Additionally, CBL itself has absorbed some of the cost in order to ensure a more competitive price on US shelves. “Government has given and we’ve given because we are looking at the bigger market potential and the bigger picture. You price at a reasonable price in order to get your foot in the door and gain some market share,” says Archer.

And as tourism figures, which stood at nearly five million visitors in 2006, are forecast to continue growing, it is likely that sales of Kalik in the United States will keep pace. More people exposed to the brew in The Bahamas and interested in recapturing a bit of their vacation experience at home with an ice-cold Kalik may help CBL attain the desired market share.

Global competition
CBL’s success has not come without challenges. In other regional countries, agencies and their official distributorship agreements are protected by law. Not so in The Bahamas; as long as someone pays customs duty, they can import any brand, regardless of who the agency is, a practice that can create an unfair competitive advantage.

“The entire world market is looking for a levelling of the playing field, but they are only looking at it from one standpoint. They’re forgetting that in other markets, there are subsidies and tax discounts. But in The Bahamas and other Caribbean markets, there is no one to provide a subsidy, nor are there tax breaks to be had, so we need those duties in order to protect our markets,” says Archer.

In addition to the hefty excise taxes, there are other duties as well as the typical costs associated with doing business. Unlike its predecessor in the 1960s, however, the current Bahamian government is taking action to help the local market prosper. In June 2006, government removed the threat of double taxation from companies exporting locally produced alcoholic beverages by eliminating business licence fees in addition to the excise tax owed under the Spirit and Beer Manufacture Act.

Sands re-enters the market
Encouraged by the successes in the industry and not the slightest bit put off by the challenges is James Sands, who is building the Bahamian Brewery & Beverage Company in Grand Bahama. Sands may appear to be the new kid on the block, but in truth he has grown up in the liquor industry. His father, Everette Sands, was one of the founding partners of Butler & Sands, a local distributor now owned and operated by The Burns House Group, which is led by Archer.

His $15-million project well under way, Sands intends to begin producing his lager by year end. Sands Beer, which got its name in an island-wide contest, will be the Grand Bahama brewery’s primary product, with another lager, a stout and a malt beverage all as yet unnamed, soon to follow. Competing against established brands, especially the reigning Bahamian brew Kalik, will not come easy, but Sands says he is confident that the local market will support products from a 100 per cent Bahamian-owned brewery. His 30-strong staff will be entirely Bahamian as well, with the exception of two highly specialized positions: brew master and engineer.

Sands says he is often questioned about his decision to locate the brewery in Grand Bahama despite the fact that 80 per cent of beer consumers are based in New Providence. He says modern freight systems have brought the islands much closer together, and he is proud that his presence in a place that has struggled for years to reach its potential will be mutually beneficial. “As you know, there’s not been that much happening here in Grand Bahama and everything’s going to Nassau. Freeport offers a tremendous number of advantages through the Hawksbill Creek Agreement that Nassau simply cannot offer. I’d like to encourage more businesses to consider this island.”

Both Archer and Sands see a bright future ahead for the Bahamian beer business. With government working alongside business to encourage their success, Bahamians and an ever-growing flock of visitors embracing locally brewed beers, and an export market within attainable reach, they both foresee their companies being able to expand under prudent management. As Sands says of his decision to enter the market now, “the timing is right on the money.”

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