EXECUTIVE CHALLENGES IN THE ALCOHOLIC BEVERAGE MARKET. 12

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EXECUTIVESUMMARY  Symrise AG is a worldwideforerunner and known provider of fragrances and flavors as well as basicmaterials and substances for the pharmaceuticals, cosmetics and food industries. This report is a market analysisand identification of business opportunities/potentials of the alcoholicbeverage industry in Ghana. This analysis is to provide adequate information toSymrise AG to enable it establish a subsidiary in the West African Sub- Region. The report is a culmination ofresearch work done as an assignment given by the German public listed company(MDAX) to undertake a market research to facilitate the preparation of a marketentry strategy into the Ghanaian market. The report indicates that Ghanais a potential market for the alcoholic beverages and Symrise AG can besuccessful if it establishes a subsidiary in Ghana to serve the West Africa.

 Real GDP growth inGhana was expected to accelerate in 2016 and 2017 increasing disposable incomesover the next 10 years and consumers will have access to more money to spend onessentials as well as discretionary goods like alcoholic beverages.1          CONTENTSEXECUTIVE SUMMARY. 21.

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     INTRODUCTION.. 4GLOBAL.

42.     SYMRISE AG- THE COMPANY UNDER REVIEW.. 43.     DEMOGRAPHICS OF GHANA.

54.     MARKET OVERVIEWOF ALCOHOLIC BEVERAGES IN GHANA (IMPORTED, SOLD AND CONSUMED) 6a.     FOREIGN DIRECT INVESTMENTS AND IMPORTS. 6b.     SALES. 6c.     CONSUMPTION..

76.     PRODUCTION, DISTRIBUTIONAND SUPPLY CHAIN STRUCTURE. 87.

     MANUFACTURING COMPANIESAND THEIR INVESTMENTS. 98.    MARKETENTRY STRATEGY..

109.    MARKINGS,LABELLING AND STANDARDS.. 1010.      IMPORTDUTIES AND COLLECTIBLES.. 1111.

      CHALLENGESIN THE ALCOHOLIC BEVERAGE MARKET. 12a.    HIGHTAXES.. 12b.    POORDISTRIBUTION NETWORKS.. 12c.

    COUNTERFEITINGAND UNREGULATED INDUSTRY. 1212.      MARKETSURVEY.. 13a.    Chart 1: Gender Distribution Chart 13b.    Chart 2: Alcoholic BeveragePurchasing Point Chart 14c.

    Chart 3: Alcoholic BeverageConsumption Point Chart 14d.    Chart 4: Average Money Spent onAlcoholic Beverage Chart 15e.    Chart 5: Monthly Household IncomeChart 15f.     Chart 6: Weekly Expenditure onAlcoholic Beverage Chart 1613.      CLASSES OF ALCOHOLIC BEVERAGES IN GHANA..

1614.      PRICING RANGE.. 1715.      CONCLUSION..

1716.       REFERENCES. 18   1.  INTRODUCTIONGLOBALThe global alcoholicbeverages market was quoted to be of a value close to $1,344 billion in2015, and is anticipated to reach $1,594 billion by 2022, increasingat a CAGR of 2.1% from 2016 to 2022.2An alcoholic beverageis a drink that has ethanol, popularly known as alcohol, as part of its constituents.(Zakhari, 2006) They are grouped intothree: Beers (contain 5.

5% pure alcohol) Wines (contain 13% pure alcohol) Spirits (contain 40% pure alcohol)3 Most cultures aroundthe world over the years have traditionally consumed various types of alcoholicbeverage. Nevertheless, alcoholic beverages brewed locally is the most consumed. 2.  SYMRISE AG- THE COMPANY UNDER REVIEW The Symrise Group wasestablished in 2003 by a merger between the German companies Haarmann &Reimer and Dragoco which were established in 1874 and 1919 respectively.Symrise is a globalsupplier of fragrances, flavorings, cosmetic base materials and substances aswell as functional ingredients.  Symrise has a market share of 11% as at2006 and it is one of the world’s largest suppliers in the Flavours market.The company has three(3) segments:  Flavor,  Nutrition and  Scent & Care4The company’s majorclients are manufacturers of perfumes, cosmetics, food and beverages and thepharmaceutical industry.

The company has its headquartersin Holzminden, Germany and has over 90 locations across in Europe, the MiddleEast, Asia, the United States and Latin America. In the West African Sub-Region, it is located only in Ikeja-Lagos, Nigeria5.However, the companyintends to enter into the Ghanaian market with particular focus on alcoholicbeverages.  3.

  DEMOGRAPHICS OF GHANA Ghana is a lowermiddle income country with a per capita income of US$1,380 and a GDP ofUS$42.69 billion6.Ghana’s populationgrowth rate has averaged 2.4 percent per annum between 2010 and 2015 and is seeinga gradual decline. 7The working age population is between 15-64-year-old and has an average growthof about 3 percent by 2010. It however declined slightly to 2.

5 percent in 2012(United Nations, 2013). The population ofGhana in 2017 was estimated to be 28,409,576 people. Ghana has a young agestructure, with approximately 57% of the population under the age of 25.

 Ghana populationdensity is 119.1 people per square kilometer (308.5/mi2) as ofNovember 2017. 4.  MARKET OVERVIEW OF ALCOHOLICBEVERAGES IN GHANA (IMPORTED, SOLD AND CONSUMED) a.

      FOREIGN DIRECT INVESTMENTS AND IMPORTSGhana is a netrecipient of Foreign Direct Investment (FDI) in the beverage sector.  Ghana recorded a total of 26 FDI projectsinto Ghana’s beverage sector between January 2003 and September 2015.  According to FDIIntelligence 2016, the United States was the leading source market for Ghana’sbeverage sector investments with 7 investment projects (USD3.1bn) from 2003 toSeptember 2015, followed by the United Kingdom and South Africa respectively.

8Ghana currently imports 60 million litres of ethanol yearly.9 b.     SALESAlcoholic beverage salesare anticipated to see very solid growth in Ghana from 2014 to 2020 (forecast),reflecting both the country’s strong macroeconomic outlook and good consumerspending momentum over the forecast period.Ghana’s beer salesshowed the largest sales of beverages, rising from 226 million litres in 2012to a forecast 327 million litres in 2020.  Barring beer, redwine is anticipated to achieve the biggest alcoholic beverage sales in Ghanaover the five-year forecast period to 2020 increasing by 6.

7% from 16.8 millionlitres in 2016 to 21.8 million litres in 2020, followed by white wine growingby 6.6% (BMI, 2016).  c.    CONSUMPTION Beverages in Ghanaare very indispensable during social functions.

From somber occasions to joyousones, beverages are used for traditional rites and proclamations. When a childis born in the Ghanaian setting, drops of water and alcohol are put on thechild’s tongue to show sincerity. At funerals and durbars, libations are pouredas part of prayers made to the ancestors and gods of certain communities andethnic societies.

Ghana’s population ofover 24 million, provides an increasing market for alcoholic beveragesestimated at $600 million. Estimates in 2014 indicated that the beveragessector contributed approximately US$125 million to the GDP of Ghana. Thisindicates the prominence of the industry.

10Research by the GhanaStatistical Service (GSS) revealed that the prevalence of alcohol consumptionin Ghana was 26.7% with men having a prevalence of 35.8% and women of 17.5%. 11Among men, the lowestconsumption of alcohol (ie 14%) is in the Northern Region.12A cross- sectionalstudy carried out on the consumption and drinking frequency of alcoholicbeverages among women in Ghana in 2015, revealed that 18% of 4,916 women aged between15 and 49 drank alcohol but it was not frequent. The consumption increased from7% in the age group 15-19 to 26 % in the age group 45- 49.

Women who wereemployed were as twice as likely to drink alcohol (20 %) as compared to unemployedwomen (10%).13 In Ghana, prevalenceof alcohol use in the general population was 26.8% in 2015 while it was 36.7%among men and 17.5% among women. Prevalence was found to be highest in theUpper West region 37% followed by the greater Accra region with 32.5 %.14A WHO report revealedthat adult alcohol consumption in Ghana with regards to the types of alcoholicbeverage was 27% for beer, 5% for wine, 2% for spirits and 66% of several otheralcoholic beverages including beverages made from sorghum, maize millet rice orcider, fruit wine and fortified wine (WHO, 2016).

 The popularity of thelocal alcoholic beverages is based on: Intrinsic herbal extract component and medicinal value The use of local flavourings (ginger, cinnamon, ginseng, strawberry, vanilla, chocolate and lemon) Its claim of improving sexual potency (as an aphrodisiac) For relaxation For identification with a social class or status6.    PRODUCTION, DISTRIBUTION AND SUPPLY CHAIN STRUCTURE approximately half ofthe value of the Ghanaian alcoholic beverage market comprises sales of beer,which is the single most popular beverage among drinkers.The business ofdistribution is closely vertically integrated with the manufacturing process,primarily because of the integrated distribution model chosen by most marketleaders in the country.

Distribution ismostly done using extensive first-line distribution network, which distributesbeer produced from breweries to depots within the country.  Those that are notshipped through these depots, are under the control of independent distributors(also called appointed distributors), who obtain their products from breweriesand transports it to their own depots and onwards to wholesalers and retailers.Figure 1: Source: Open Market Survey7.  MANUFACTURING COMPANIES AND THEIR INVESTMENTS Ghana, in recent yearshas gradually metamorphosed into a key consumer of beer and one of the biggestbeer- consuming countries on the African market. This is of course propelled bythe increasing economic momentum of the country’s formal sector.Ghana, however still hasa relatively low per capita beer consumption of 14.

2 litres annually of byregional standards.15Kasapreko, an indigenousalcoholic beverage manufacturer, which was previously an informal brewer hasformalized their business and has joined and intensified competition betweenthe local and multinational beer companies. The company in 2012 acquired a USD30 million bottling plant and also commissioned a USD 70 million factory in2015 to expand its activities in the region.Beer multinationalcompanies now produce low-cost beers for the domestic Ghanaian market and areincreasing their footprint rapidly to meet demand. SABMiller is known to havegrown its market share by a whopping 48%, up by 20 percentage points in 2010.The USD 100 millionuplift of the Accra Brewery Limited’s (ABP) manufacturing infrastructure in2015 has doubled its production capacity and this signals a long-term strategyto boost operations in the West African Sub- Region.

 8.  MARKET ENTRY STRATEGY Asuitable market entry strategy into this highly competitive market is to beappoint a local agent or distributor who can assist with the establishing andregister an entity, provide market intelligence, assist with local market regulations,develop consumer demand and attend trade shows, conferences and seminars. 9.  MARKINGS, LABELLING AND STANDARDS Ghana’sGeneral Labelling Rule 1992 of the Food and Drugs Authority (FDA) depicts thatall products imported or produced locally should be bear the following inEnglish Name of product; Net mass or weight or net volume of content; Composition of content of product; Date of manufacture of product; Date of expiry of product (or best before date); Batch or lot number of product; Name and address of manufacturer or agent; Directions for use, if relevant; Any special instructions for storage, handling; etc.

and Any pertinent warnings. Allalcoholic beverages are compulsorily to be registered with the Ghana Food andDrugs Authority (FDA). The agency is responsible for the development andmaintenance of standards and ensuring that goods imported into the country areof acceptable standards. 10.             IMPORTDUTIES AND COLLECTIBLES CustomsExcise and Preventive Service (CEPS) responsible for collection of Import Duty.The advent of paperless port systems has simplified the tax collection processSampleof Taxes and Tariffs to be paid for the importation of alcoholic beverages intoGhana. Tax Code Tax Description Tax Base Tax Rate 01 Import Duty CIF 20% 02 Import VAT VAT 15% 03 Import Special Tax VAT 0% 04 Import Excise Duty CIF 22.5/25/47.

5% 05 Processing Fee CIF 0% 06 ECOWAS Levy CIF 0.50% 07 Export Dev. Levy CIF 0% 32 Network Charge FOB 0.

40% 33 Net Charge VAT NETVATB 15% 47 Import NHIL VAT 2.5% 48 NET Charge NHIL NETVATB 2.5% 56 IRS Tax Deposit CIF 1% 78 Special Import Levy CIF 2% 87 Ghana Export- Import Bank EXIM CIF 0.

75%   11.             CHALLENGESIN THE ALCOHOLIC BEVERAGE MARKET a.  HIGHTAXES Due tothe increasing prevalence of alcoholic beverages on the Ghanaian market, therehas been high taxes and tariff imposed on the importation of these products.

This is to gradually shift the cost of alcoholic beverages upwards out of thereach of the average Ghanaian. Another reason is as a trade barrier to reducethe quantities that are imported so that local production can be boosted andpatronized. b.

  POORDISTRIBUTION NETWORKS Ghanais still faces challenges with its road distribution networks. The very goodroads are centered around the big cities such as Accra, Tema, Kumasi,Takoradiand so on. Mostof the major and feeder roads leading out of the city centers to the countryside are not in poor condition. This makes smooth, timely distribution of goodsquite cumbersome hence the dense population of most manufacturing sites withinthe Accra and Tema enclave.Apartfrom roads, the infrastructure for storage, distribution and warehousing ofalcoholic beverages is not streamlines. Retailers can either purchase fromdistributors or directly from the factories and this presents a complex matrixof distribution.

This affects the pricing policies also as this cannot beproperly regulated and monitored. c.  COUNTERFEITINGAND UNREGULATED INDUSTRY Anothermajor challenge in the alcohol production industry is counterfeiting of thebeverage. This is a challenge which the Ghana Standards Board in conjunctionwith the Food and Drugs Authority is doing its very best to contain. There areunlicensed local brewers producing alcoholic beverages and selling tounpresuming customers.

The concoctions are usually sold at so- called ‘bluekiosks’ where the very hard liquor and locally brewed ‘akpeteshie’ (80%ethanol) is sold. It must be noted however, that GSB and FDA are doing theirvery best to accost those found breaking the law. One of the approaches the agencies haveadopted is to launch a NationalAlcohol Policy Document during the first quarter 2017 to regulate the Production,Distribution, Sales, Advertisement and Consumption of alcoholic beverages. 12.             MARKETSURVEY Topractically understand the local alcoholic beverage industry, a market surveywas carried out with 236 participants.

These participants were largelyliterates, middle- income earners with a stable employment. a.     Chart 1: Gender Distribution Chart b.     Chart 2: Alcoholic BeveragePurchasing Point Chart c.      Chart 3: Alcoholic BeverageConsumption Point Chart  d.     Chart 4: Average Money Spent onAlcoholic Beverage Chart e.      Chart 5: Monthly Household IncomeChart f.

       Chart 6: Weekly Expenditure onAlcoholic Beverage Chart   13.             CLASSES OF ALCOHOLIC BEVERAGES IN GHANA a.    COGNAC/ BRANDY·        Hennessey·        VSOP·        Remi VSOP·        Martell VSOP·        Couvoisieur VSOPb.    WHISKY·        Blue Label·        Jack Daniels·        Platinum Label·        Glen Fiddich·        Black Labelc.    WINES·        Anfora·        Nederburg·        Herschels Wine·        La Fiole Du Pape·        Chocolate Blackd.

    RUMS·        Barcardi·        Capt. Morgan·        Malibue.    LIQUORS·        Bailey’s ·        Amarula·        Bristol Cream·        Irish Creamf.     LOCAL·        Akpeteshie·        Millet Beer·        Corn Beer·        Palm wine  14.

             PRICING RANGE Localbeers                           GHC 5- 10ImportedBeers                     GHC 6- 15ImportedSpirits (per shot) GHC 5-10 15.             CONCLUSION Ghanais a diverse country with diverse alcohol consumption patterns. Different partsof the country have different drinking practices. As alcohol is a statesubject, the state is in the process of provides a holistic legal provisionthat govern alcohol and the alcohol industry, leading to uniformity of thisbudding industry. Thefavorable demographics, rising disposable income levels and greater acceptanceof alcoholic beverages in social circles greatly improves the outlook for theGhanaian alcoholic beverage industry to keep growing and expanding.

Aninvestment into the sector by Symrise will therefore be a viable businessstrategy which will yield benefits in the long run. 1 The FitchGroup Company, Ghana Food & Drink Report, 2015.

2 ‘Alcoholic Beverages Market by Type(Beer, Distilled Spirits, Wine) and by Distribution Channel (ConvenienceStores, On Premises, Retailers, and Supermarkets) – Global Opportunity Analysisand Industry Forecast, 2014-2022’, 2017, p. 250..3 Nana Yaw Oti Boateng, ‘AlcoholConsumption among University of Ghana Students on Legon Campus’ (University ofGhana, Legon, 2016).4 Symrise AG, ‘Symrise Website’, 2017.5 Symrise AG, ‘Symrise Website’.6 World Bank, ‘World Bank’.7 United Nations, ‘United NationsCountry Profile_ Ghana’.8 Wesgro Cape Town & Western CapeResearch, Ghana Food and Beverages Sector(Johannesbury, 2017).9 Ghana News Agency, ‘FIRST ETHANOLPLANT TO BEGIN PRODUCTION’, 2016.10 Oti Boateng.11 ICF Macro, Demographic and Health Survey, 2009.12 ICF Macro.13 ICF Macro.14 Anthony Tampah- Naah and SamuelAmoah, ‘Consumption and Drinking Frequency of Alcoholic Beverage among Women inGhana: A Cross-Sectional Study’ (University of Development Studies, 2015).15 Sulaima Isma-iL and Bernard Boachie-Danquah, Ghana’s Mergers and AcquisitionsReport 2017, 2017 .

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