THE KWAL, DISTELL MERGER

KWAL set for a stellar growth with Distell on the steer

By Caroline Mwendwa

One cannot talk of the wines and spirits industry in Kenya without a mention of KWAL. Indeed its launch in 1969 was a game changer for this industry, but even to a greater extent, is its evolution over the years. One of the major drivers of this evolution, is its relationship with the South African based Distell Ltd, the Africa’s leading spirits and wines operator. This relationship extends from as long as 15 years since KWAL has been bottling a selection of Distell’s drive brands and distributing them and its other brands in Kenya and other parts of East Africa.The partnership was later stamped in 2014, when Distell bought a 26 % share of KWAL from government’s Industrial and Commercial Development Corporation (ICDC), and early this year bought off Centum Investment acquiring a further 26.43% and becoming the majority shareholder of the firm with a total of 52.43% share. The wine agency which started off as a parastatal has undergone a morphosis into becoming one of the best managed private firms with an outstanding employee attraction recognized by Deloitte earlier this year with a bronze seal of achievement award. “Transition from a governmental organization to a private owned company has casted a stellar growth. The process involved a complete overhaul of structures, and the fruits of the entire process can clearly be seen,” says Gordon Mutugi, the group’s corporate affairs manager.
In a very short span, the company has recorded an increase in profits despite a tough operating environment where excise tax on spiritous alcohol beverages was increased. Mutugi attributes this stellar growth to the reduced bureaucracies and a walk away from the rigid systems that come with governmental control of parastatals. “We can now have direct negotiations with suppliers for example which makes sourcing faster and cheaper,” he quips. The human resource has also been thoroughly streamlined ensuring that more skilled and equipped employees are recruited, and the non-core functions outsourced. This no doubt came with downsizing but this was a win win for both parties as those that were laid off had a package worth settling for.
Despite KWAL assuming a private tag, the government is still reaping from the progress the firm is making as ICDC is still a shareholder. “The privatization has indeed been a gain for both the government and the rest of the shareholders since there is much more profits coming in which means even more revenue for the government alongside a rev up in dividends.”

What Distell brings on the table?
The merger with Distell makes a laudable leap for the company as they bring in expertise from South Africa. “Distell has greater experience in terms of skill and innovation, while KWAL is a seasoned local distributor, the two make a highly productive duo. “We have an exchange programme that allows employees from Kenya to visit Distell in South Africa and the South African employees of Distell come over to Kenya. These enable us exchange skills and experience,” explains Mutugi.
He further explains that Distell being a global brand is helping KWAL develop more innovative models of marketing making it much more convenient for their customers.
In terms of technology, KWAL is significantly sharing innovation initiated by Distell. “We are set to roll out an Sh800 million plant expansion next month, which will increase our foothold on our range of locally bottled wines and juices thanks to Distell’s technological insights.” A lot more has been achieved technology wise, such as the launch of a software that helps them better run the markets making it more convenient for customers to access their brands.

In the pipeline
Having already begun repackaging some of their products to a more look and feel appeal, KWAL is set to come up with even more exciting brands that are trendy.
Secondly, the firm intends to maintain its employee attraction status and raise the bar higher in creating a supportive system for its employees.

Trends in the industry
As Mutugi observes, this industry suffers the fragmentation of regulation. “Alcohol control is a devolved function and each county wants to control a different thing and in very different ways,” he points out. This he says has resulted to a heightened level of counterfeit and illicit alcohol business all over the country, since there is no defined universal regulation.
Secondly, the economic environment for this business is dire. “With relatively high taxes building on other escalated costs of water and electricity, there is definitely so much pressure to take in before the business makes profits.”This has however not hindered KWAL from maintaining affordability of their brands. “Even when tax was increased on spiritous alcohol, we maintained the prices of our key brands like the popular kibao vodka.”
KWAL is part of ABAK (Alcohol Beverage Association of Kenya) which also includes other key players in the alcohol industry such as KBL, UDV, London Distillers, Moonwalk and Africa Spirits. Through this body KWAL lobbies different government agencies and partners in the fight against impediments that derail growth and expansion of their business activities.