Kenyan Beer Company Entered Tanzanian Market

Case Type: business competition, competitive response.
Consulting Firm: Capgemini Consulting first round full time job interview.
Industry Coverage: food & beverages.

Case Interview Question #00842: Tanzania, officially the United Republic of Tanzania, is a country in East Africa within the African Great Lakes region. It is bordered by Kenya and Uganda to the north. Tanzania is one of the poorest countries in the world with a population of 52 million as of 2014. The Capital is Dodoma and the largest city is Dar es Salaam. The neighboring Kenya has a population of approximately 45 million people as of July 2014. Kenya’s Capital and largest city is Nairobi.

Your client is “South Beer”, a major beer producer in Tanzania. South Beer used to be the only supplier of beer in Tanzania until a few years ago when “North Beer” of Kenya entered the Tanzanian market. In retaliation South Beer entered the Kenyan market. What do you expect happened to the revenues of South Beer in the Tanzanian market?

Possible Solution:

First, ask the interviewee what could have happened. — I would expect beer prices to drop from a monopoly position based price, to a market price. North Beer entered the Tanzanian market with low prices to build market share.

What else could have happened? South Beer’s cost increases:

* South Beer’s COGS may have increased due to smaller volumes of beer being sold in Tanzania.
* Marketing costs may have increased to stop North Beer’s entry.
* Labor costs may have increased due to second potential employer being available.

In fact, after a couple of years both the Kenyan and Tanzanian parts of the beer business were making a loss. What should South Beer do?

Additional Information: to be provided after relevant questions

* North Beer is also not making money.
* North Beer has 90% market share in Kenya and South Beer has 80% market share in Tanzania.
* We think the market share of South beer in Tanzania is worth $80M and the market share of North Beer in Kenya is worth $180M.

After obtaining data on market share, I further calculated:

* Market size of Kenya = $180M/90% = $200M
* Market size of Tanzania = $80M/80% = $100M
* The market share of South Beer in Kenya = $200M * 10% = $20M
* The market share of North Beer in Tanzania = $100M * 20% = 20M

I suggested South Beer to buy out North Beer’s share in Tanzania. However, when evaluating how much you would pay for the business you also need to consider:

* Is the profitability of market share related to market share %, or have we captured a high profitability niche market?
* Cost cutting opportunities
* Cross selling opportunities

The interviewer then asked: How would you go about estimating future revenues streams, ignore volumes but focus on how would you get good pricing data?

* Inflation -> get data from governmental sources
* Analyze/compare previous inflation data to beer prices
* Predict inflation impact on beer prices

After the interview the interviewer provided the following information: eventually North Beer and South Beer bought each other out in the other’s territories and they set about a joint venture in a third country to leverage their expertise and to get used to working together.