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Beer wars: Nile, Bell row rocks industry

A 500 ml long neck bottle is at the centre of a row between Uganda's beer giants, Nile Breweries Limited and Uganda Breweries Limited. Nile Breweries Limited is threatening legal action against Uganda Breweries Limited if the latter does not drop the long neck 500ml beer bottle.

Nile Breweries Limited is claiming exclusive rights to the bottle in which it packages brands such as Castle Milk, Nile Special and Club Pilsner. The bottle has become popular among the urban elite. UBL, on the other hand, argues that claiming such rights is baseless.

The tension between the two companies is billed to become one of the most hotly contested public disputes in Uganda’s corporate industry. The dispute, which delves deeper into the struggles of growing a brand, is also a testimony that any pretence of modesty between the two companies is non-existent.

That both companies could issue two different statements on the same day claiming rights over the long neck bottle is an indication that attempts at dialogue had failed. Nile Breweries broke with its traditional norm of resolving these issues behind closed doors when it issued a public statement noting that “the uniquely designed long neck 500 ml beer bottle is registered by M/S NILE BREWERIES LIMITED as its trade mark under No. 32118 – Class 32 of the Trade Marks Act and also as industrial design with ARIPO under NO. AP/D/00176.”

NBL argues that it issued the public notice because UBL failed to recognize that it (NBL) owned the rights to the bottle. “M/S NILE BREWERIES LTD has issued a notification to M/S UGANDA BREWERIES LTD on Friday the 30th October 2009 that they are in breach of this trademark by using this bottle,” said NBL.

According to the notice, “whoever deals, sells or distributes any other beer product that is not Nile Special, Club Pilsner or Castle Milk Stout in a long neck 500ml beer bottle from M/S NILE BREWERIES LTD shall thus be liable to prosecution, legal consequences and penalties.”

Within hours, UBL had responded with a statement of its own. “We would like to state for the record that we, Uganda Breweries Limited, categorically deny that the GENERIC Long Neck is distinctive in any regard, and given its “generic” status contend that it cannot be the subject of any exclusive rights as claimed,” notes the statement.

UBL says that they have been packaging their President Lager in the long neck bottle since early this year, and describes NBL’s registration of the bottle as an allegation. UBL conceived the idea of President Lager in honour of Barack Obama’s inauguration as the President of the United States of America. UBL has advised its customers to ignore NBL’s notice.

Edgar Tabaro, a partner at Karuhanga, Tabaro Advocates, who is also an expert of Patents and Trademarks, says that in case NBL decides to go to court, the final ruling will likely come down to the market's reaction towards brands. He explains that Uganda's market is not sophisticated to distinguish  bottles.

"There are a number of issues to consider here. Can the bottles be distinguished in the market place? What is the likelihood that they will be confused as Uganda's beer drinkers, many of whom are in the low end, cannot distinguish the product?"

He explained that the failure to distinguish a product can hurt the other company's brand if the quality of the beer is compromised. Tabaro, however, says that if it is indeed proved that UBL was using the 500 ml long neck bottle long before it was trademarked, "then NBL should simply close its books and count its loses." The Observer could not readily establish the exact date when Nile Breweries trademarked the bottle.

LIKE FATHER, LIKE SON

The spat between Uganda’s largest beer companies comes as their parent companies, Diageo for UBL and SAB Miller for NBL, struggle to break ties between them after the collapse of their six-year partnership in Tanzania.

In 2002, East African Breweries Limited - which is based in Kenya and is also owned by Diageo - entered into a partnership with Tanzania Breweries Limited, a subsidiary of SAB Miller, where both agreed to sell and grow each other’s brands. EABL was to sell and grow TBL’s Castle Lager brand in Kenya while TBL was to do the same with EABL’s Tusker in Tanzania.

However, disagreements over the pricing of the brands led to a breakdown in the relationship. This prompted Diageo, through its subsidiary EABL, to make a bid for Serengeti Breweries Limited, which is TBL’s main competitor in Tanzania. TBL contested this on grounds that they still had a partnership with EABL. Currently, both Diageo and SAB Miller are before an arbitrator in London, seeking to end their partnership.

It is not yet clear whether the conflict between their parent companies has any connection to the row between UBL and NBL. Nevertheless, whatever comes out of the arbitration in London has an impact on Ugandans who have bought EABL shares on the Uganda Securities Exchange.

Agnes Murgor, EABL’s Company Secretary, has already called on investors to be cautious when dealing in EABL’s shares. “These developments (about Diageo and SAB Miller’s fight) are likely to have a significant impact on EABL group’s business in Tanzania.

Consequently, shareholders and other investors are advised to exercise care when dealing in EABL’s ordinary shares on the Nairobi Stock Exchange, the Dar es Salaam Stock Exchange and the Uganda Securities Exchange until further information regarding these developments is made available,” said Murgor.  
The Uganda Securities Exchange All Share Index – a benchmark that investors look at to determine the performance of the market – is dependent on EABL’s performance because the company accounts for the largest turnover (the value of the company’s shares) on the USE.

For now though, the dispute between Uganda’s two largest brewers goes well beyond the shape of a bottle. Uganda’s beer industry is becoming heavily competitive as the market to grow sales appears to be bottoming out despite reports indicating that Uganda is one of the highest consumers of alcohol in the world.

A number of companies are postponing launch parties and cocktails, while the brewers themselves are becoming cautious of pushing up production, partly due to the uncertainty within the global economy.

COMES IN PARAMBOT

Also, the emergence of a third player, Parambot Limited, with its flagship beer, Moonberg, is gradually becoming popular, and has narrowed the market share once enjoyed by the country’s traditional beer giants.  

These factors, among others, are forcing beer companies to intensify their efforts in growing their brands. Nile Breweries Limited’s launch of the Nile Gold Beer mid this year – which it is promoting vigorously – is being seen as a strategy to eat into UBL’s Tusker beer sales.

Nile Breweries Limited is currently carrying out heavy investments in factory and plant expansions, a factor that could reduce the funds needed to grow their beer brands. Many businesses normally cut their marketing and promotional budgets in times of plant and factory expansion. Stopping its main competitor, UBL from hurting its brands through legal action appears to be a cheaper option for NBL.

Just how UBL and NBL intend to resolve this deadlock over the long neck 500ml beer bottle is something that this market is bound to wait for anxiously.

jeff@observer.ug

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