Sesan Sobowale, the Guinness Nigeria Plc company secretary has explained to BusinessDay the factors leading to the decline in profit of the company last financial year. Top among them are distribution challenges and price increase across some brands that influenced consumers to move to other competing brands. He told Daniel Obi in this interview that Guinness has rolled back the prices and embarked on intense market push to bounce back to profitability. Excerpts.
Your annual report for 2013/2014 showed some downward slide, could you tell us what affected the performance?
The performance showed that for the full year, revenue was down 11 percent, profit declined 19 percent. This is attributed to a couple of things. One was pricing disadvantage. In October 2013 we increased the prices of most of our brands. This is what players in the industry do once in a year to account for inflation. I have been in this business for 10 years and in each of those years we had increased price by one price point which is usually around N10 because of the issue of changes. Retail usually round this off for customers. Each time we do this, the other players in the industry will follow. But for the first time since I got here in 2004, we increased price in most of our brands but our biggest competitor did not follow suit. We thought they wanted to do it close to Christmas, we watched as the months of last year rolled by and they did not increase prices. These are discretionary products which are different from rents or schools fees. Before you drink you must have taken care of other essentials and it is an industry that is price- sensitive.
Are you saying that consumers noticed the increase in price and moved in droves to cheaper brands?
Yes. They moved to cheaper brands and the sales affected our bottom-line.
Why did you increase the price?
It was because our input cost was going high. It was a routine thing to hedge inflation.
Do you think the action was wrong decision or ill-timed?
With benefit of hindsight consumers could say so but it was not ill-timed in the previous years. I don’t think it was probably in line with the mood of the market. As a result of that what we did was to reduce the prices. But it is easy for things to go up but hardly come down. Though we have reduced the prices we sell to distributors, and we try to monitor the price they sell to wholesalers but when it got to the bar it took a long while before the bars adjusted.
What other factors affected the performance?
The second reason is that the fasted growing segment in the beer industry is the value segment where we have few brands. This is where Dubic, Goldberg among others play. Dubic and others will sell at N150 but the other mainstream brands like Harp and others will sell at N200. In the value segment, we have two offerings – Dubic and Satzenbrau but they are relatively small brands compared to others. So we are a bit disadvantaged in the segment that is fastest growing.
The third reason is that we have had distribution challenges. Our national share market today is probably around 26 percent but in Lagos our share market is around 40 percent. If the national average is 26 percent, this means that there are areas we are around 10 percent. Our products are nationwide but you may not find all our brands in some remote areas. The forth reason and especially for the decline in the bottom-line, is our finance cost. In the last years we have been investing in expanding capacity, trade assets, more chillers, distribution vehicles and chairs for our distributors.
How are you addressing the challenges?
On pricing for instance, we have rolled back the prices across board. On distribution, we have a route to consumer project that is currently on-going where we are supported by executives from Diageo and we are working with consultants to improve our route to consumer around Nigeria. We have finished our pilot in Lagos and this has resulted in to a slight increase in our market share. On finance cost, we are managing that better. In fourth quarter (April to June) when the financial year ended, we sold more and paid less on interest and profitability was higher but when you put the whole year, the profitability was affected. Our expectation is that the fourth quarter trend will continue in the new financial year.
Now you have reduced prices how do you still hedge inflation?
It is a cost you have to pay in this market. What that will mean is reduced profitability overall. But we are hoping that because of the price correction if we get more volume sales we won’t be hard hit especially if we sell more of our high margin brands. The situation means that given the economic realities the business today will probably be less profitable than it was two years ago when we could freely adjust prices for inflation. To ensure it does not happen again, we need to be more attuned to the dictates of the market and understand what sucks money from people’s pocket.
There appears to be slide in beer consumption generally, what are you doing in this regard?
We have noticed that there is slide in beer consumption and this is due to pressure on discretionary income. We are hoping that overall productivity will increase and that even if government removes the remaining subsidy Nigerians could still do what they want to do. Secondly, the beer industry comes second after telecom in promotion and advertising spend. We will play our part in stimulating sales. The third thing is to further get more consumer insight in terms of innovation that consumers crave for and we have been bullish about innovation especially with the introduction of Origin bitters.
Would you say you are getting your marketing strategies right?
I don’t think we have a broken market strategy. I think what happened is that we sell iconic brands that have been around for some time. While the old brands have their advantages, the disadvantage is that if you don’t constantly recruit adorers to your brands, then the people who are loyal to the brands as they get older, they retire and being more careful with discretionary spend. What we find is that the 18 to 35 years want to be different from their fathers in everything, even if it is to make a statement that they are young. Our target now is to make it more relevant to the youthful population. We are now doing certain exciting things that will resonate with the youth.
Are you restructuring your marketing team, to achieve that market push still with Austin Ufomba leading the marketing team?
No. We are not restructuring as we have great marketers in our team. But as part of his development, Austin Ufomba is no longer the marketing and innovation director. He has moved into another commercial area of the business. He is now the trade development director who is now looking at issues around distribution, around new channels and providing back office for the core commercial team. Garvin Pike takes his job as marketing and innovation director.