It came like a bolt from the blue. On the evening of October 20, 2006, Tabitha Karanja the chief executive officer (CEO) of Keroche Brewery Limited was working late in her brewery head office in Naivasha—65 kilometers from Nairobi. Her husband, Joseph Karanja had just gone to Nairobi hospital where he was to undergo minor surgery the next day.
Karanja was winding up so she could rush to see him. As she was leaving, a fax arrived. It was after 5pm and she was curious about who sent a fax so late in the day. Her curiosity turned to shock in seconds. It was the tax man. The Kenya Revenue Authority (KRA) demanded KSh 1.2 billion ($14.117 million) in arrears to be paid within 14 days.
The competitive Kenyan brewing game is tough and like many entrepreneurs, Karanja had weathered many storms. Detractors allege that Keroche products were not prepared hygienically; once she invested in a multi-million dollar plastic bottling plant which was made obsolete overnight by a law banning plastic packaging. On a radio at the office, in the press of busy day, Karanja would hear politicians attacking her beer in Parliament.
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“One member of Parliament alleged that our drink was killing three people in his constituency every day. Considering Kenya has over 220 constituencies, how many people is that?” she asks.
Karanja fought back, she wouldn’t allow anyone to denigrate Keroche products unless they had evidence from the government chemist or the Kenya Bureau of Standards.
It meant the feisty Karanja was often in the media, if she was not threatening to sue the government, she was complaining about raids on Keroche depots by administration police or damage to her billboards by the competition. She has been to court six times to defend her beer business.
This was a world away from her humble beginnings in the age-old story of an entrepreneur spotting a gap in the market. Karanja and her husband, who were traders of manufactured goods, started out as rookie brewers in a cut-throat market. They found themselves in competition with multinational giant, East African Breweries Ltd (EABL).
Their strategy for the alcohol business was simple—to supply beer to thousands of villages in Kenya.
“The brewers who were there, only catered for the upper end of the market and people in the villages were left to drink whatever they could make—the traditional drinks. So we thought, why not make a hygienic and affordable alcoholic product. Our first product, a fortified wine, was released in 1998,” says Karanja.
Karanja says the rough waters have merely made her more determined.
That is, until the brush with the tax man crushed her spirit.
“That was the day I understood why people collapse when running a business. You wonder why a businessman who was getting into his car just died or collapsed in his office.”
On that fateful October evening, Karanja saw the future and it looked terrible. Her eight-year-old brewery, the business she had shed sweat and tears to build, was about to die.
The tax demand did not include interest and penalties. In total she owed the KRA around KSh2 billion ($23.8 million).
“I thought these people wanted to kill me so my employees could find me dead the next morning,” she says.
It got worse. After reading the fax several times, she called the KRA Commissioner’s office in a panic, but she could not get through. It was late in the evening and the government office was closed.
“KRA claimed that the business licence I was given in 1998 was wrong. I was paying 45% tax but they were demanding 65% backdated to 1998. You know how powerful the tax authorities are, not only in Kenya but everywhere in the world. I was literally shaking!”
At the back of her mind, Karanja knew it would be difficult to get a lawyer to fight KRA. Unable to get through to KRA, she went to visit her sick husband. She did not break the news to him that night, instead she went home and had one of the longest nights of her life. She did not sleep a wink.
“I was feeling awful; I panicked because I knew these guys had cornered me. My spirit was devastated,” she explains as her voice breaks.
When she informed her lawyer about going to court, he was hesitant.
Two days later, the lawyer broke the news of court action to her husband on his release from hospital.
“I remember I called the KRA Commissioner and told him I was not going to die. I am strong and I was going to fight!”
Karanja wanted the matter settled out of court but her efforts to get any of the KRA officials before the 14-day deadline were unsuccessful.
“I wanted to show them that they were wrong because I had all my facts,” she says.
It did matter. Time was running out and she knew, if she waited, KRA would freeze her bank accounts and take over her business. So she went to court and fortunately the 14-day order was stopped and after one year the case was thrown out—she had won. After all the pain, angst and fear—she had won.
That was the most horrifying point in her life. There were days she was filled with doubt and fear.
“Fortunately, the judge ruled that it was misuse of power and nobody could explain the KSh1.2 billion ($14.3 million) figure. Furthermore, I was the only one required to pay yet there were 10 other players. I am sure if we did not win that case, Keroche Breweries would be no more,” she says.
In the year she was battling KRA, there were money worries too. The bank was in the process of approving a KSh500 million ($5.9 million) loan for a new plant she wanted to set up for the launch of a new beer called Summit Lager.
“There was so much at stake—our business, our dreams, our investments and other entrepreneurs who looked up to us…”
Fortunately, the loan was approved in December 2007. But her struggles were not yet over, with an on-going case in court, things turned sour when Kenya experienced post- election violence following elections in December 2007. The equipment had been delivered and installed but business only started in June 2008.”
Despite the turmoil in the country, for banks it was business as usual. By February 2008, the bank was knocking on Karanja’s door. She had to start repaying her loan and the interest.
“The bank had warned me they would repossess the equipment if I did not start repaying the loan. I borrowed KSh10 million ($118,835) from a friend without a clue of how I would repay the rest in the coming months,” she says.
Karanja borrowed from the same friend twice.
“I struggled for months. I was entirely dependent on the products and we did not have extra money.”
For three months Summit Lager beer did not move off the shelves.
The sales from a vodka mix, launched in 2007, were not adequate to service the loan. While the company was in the process of growing the Viennese vodka brand they noticed a gap in the beer market—the same market where EABL enjoyed a monopoly.
“People only had one choice. We decided to produce a premium beer product and that is how Summit Lager was born.”
Keroche was in direct competition with EABL’s cash-cow—Tusker. Even the mighty South African Breweries Miller (SABMiller) had been unsuccessful in the Kenyan market and now Keroche found itself staring the giant down.
With a big loan to repay, Karanja was hell-bent on hanging on. She tried every trick in the book and even hired marketing professionals from the competition to help push her products but they too were unsuccessful.
“I understood them; we were fighting a losing battle. The people in the bars were being paid not to sell Summit Lager, our posters were defaced, a client would ask for Summit but they would be told the drink is not available.”
Frustrated, Karanja decided to do something radical. Together with her husband, they went to the market and talked to the distributers in 10 regions around Kenya and offered them an incentive—for every two crates they sold, they would get one free. They also went to the Parliamentary Committee to complain about the unfair competition.
“There is a time we had one million liters in the tanks and had nowhere to take it. Our business was 100% financed by the bank and it would not have been long before they [the bank] came for us.”
Karanja went before the Committee and EABL officials were summoned. She only wanted one meeting because she felt it was a waste of her time.
“I left the meeting disgruntled and told them [my staff] we should fight it out in the market so that I know I was defeated out there instead of a boardroom.”
The courts and then Parliament: it was a long way from the humble beginnings of Keroche. The seed capital was KSh100,000 ($ 1,176) which came from family savings.
The money was used to buy a second hand bottling machine that produced 200 bottles a day—around 10 crates.
“We could not approach the banks but as the business grew, we started attracting financiers,” she says.
When they needed additional capital, the local banks could not loan them the money, so in 2006 they approached Barclays Bank Plc in London for a KSh500 million ($5.9 million) loan. With all that was going on, Karanja, was in constant touch with her bankers. In 2009, her bankers almost gave up on her and a risk audit team from London was sent to look through her books—they spent one month there.
“We were put on a business support program because they also panicked when they saw we were unable to move any beer.”
When having a discussion with one of the auditors, he asked Karanja why she had decided to compete with a multi-national like EABL.
“I remember pleading with him because he was the one who was going to write the report. I begged him to give me an opportunity so that I could prove that a local entrepreneur could make something better than Tusker. I also challenged him to tell me why there should not be a competitor to Tusker.”
The bank official seemed to agree but he was very skeptical. He told her that her business would not last long.
“He gave me three months before I went under. For me to compete with Tusker I had to make a superior drink and I am convinced without doubt that our quality is superior!”
To date, Keroche has two beer brands, two ready-to-drink vodka brands, four spirits and three wines. With a current 5% market share, by end of 2014 Keroche is looking at controlling 20% of the market. Keroche currently owes the bank less than KSh200 million ($2.4 million) and is looking at borrowing KSh1.5 billion ($17.9 million) to expand by producing soft drinks.
<h3>What Did She Learn From Taking On A Giant In The Industry?</h3>
“Whatever you feel you want to start, you must know exactly what you want to do otherwise when you face one challenge, you will run away. Secondly, whatever you are doing you must offer a superior quality and be convinced beyond doubt that it will succeed.”

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Beer, Sweat and Tears