Nairobi — Keroche Breweries Ltd, Kenya's second largest brewer, is investing Sh100 million to expand its barely two-year old plant in Naivasha.

The investment, coming after the privately owned alcohol firm made the initial Sh1 billion investment, represents a major step forward as few analysts believed the upstart could weather the competition in the stormy beer industry.

Managing director Tabitha Karanja told the Sunday Nation that the new investment would increase production capacity by 10 per cent.

The brewer made its initial investment in October 2008 - starting bottling on October 24 - but says demand has stretched its 300,000-litres-a-month installed capacity.

The brewer posed the first competition to Diageo-majority owned East African Breweries Ltd (EABL) since the departure of Castle Brewing Ltd in 2002 after four years of the most famous marketing war in Kenya's history.

"We expect the economy to grow. Why wouldn't it?" Mrs Karanja told the Sunday Nation when asked why the firm was investing despite the uncertainty surrounding the August 4 constitutional referendum.

The additional fermentation tanks from the Italian firm Velo are being processed through customs at the port of Mombasa and are expected to begin the journey to Naivasha from this week.

German engineers are set to install the tanks in a process expected to last one month. Keroche's automated plant combines Italian technology with a Germany brewing process.

The managing director says her firm detected the capacity constraint last year and began planning for the expansion.

Much of Keroche's market is concentrated in Nairobi, Central Kenya and Nyanza, but the brewer has begun to build distribution capacity in other areas, especially Nakuru and Eldoret.

Mrs Karanja says the brewery will keep expanding as long as demand keeps rising.

"We will not stop here. We have always said there was a niche for quality premium beer, and we have seen the market respond to our products."

She expects the expansion to come in cycles of probably two years.

The indigenous firm makes Summit larger and Summit malt but says its plant has the capacity to produce up to 30 separate brands.

Meanwhile, Keroche would like the government to level the playing field by creating an enabling environment for investors for this economy to take off.

In the last Budget, Treasury raised the excise tax on beer from Sh54 to Sh65 a litre, making it even less affordable in the midst of sluggish economic growth. Both EABL and Keroche increased their prices after the June fiscal changes.

Interestingly, Keroche's initial investment in a brewery came hot on the heels of the 2008 post-election violence from which the economy is still recovering.

Despite her knack for going against both the gender and the business grain, few players gave Mrs Karanja much of a chance, both for the timing and the history of the brewing industry.

World's largest brewery

Castle, owned by South African Breweries (SAB), which later mutated into the world's largest brewer after hitching US Miller to become SABMiller, exited after a bruising war with Diageo that led to a stagnation of beer prices in East Africa for years.

Analysts were betting on the firm's being an easy prey for EABL especially in view of the fact that the project was financed by a leading transnational bank in one of the largest loans to the Kenya manufacturing industry since the post-election crisis.

It did not escape notice that beer volumes were going down in Kenya at the time, which partly explained EABL's unprecedented interest in the spirits market and Diageo's dogged fight to return to the Tanzanian market that has been performing better.

At the time, the Kenya economy was growing at near-zero per cent.

Keroche all the same remains a small threat to EABL even though the fact that they are expanding should merit some attention at the giant's Ruaraka boardroom if not at Diageo Plc London offices.

EABL last week was cleared by the monopolies commission to take over Serengeti Breweries paving way for a major marketing showdown with SABMiller in Tanzania; which may deflect some attention from Kenya.

Prior to investing in the a brewery, Keroche had operated a distillery for 10 years. Nevertheless, after fighting an seemingly endless battle with Treasury over heavy taxation, the firm appeared to go slow on that line of business and instead concentrated on the brewing.

The distillery is located in the neighbourhood of the brewery.

In addition to Keroche and East African Breweries, a third micro-brewery located on Mombasa Road, Nairobi, brews Sierra beer with three premium brands, Blonde, Amber and Porter.