• Monday, July 15, 2024
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Multi-brands strategy: Guinness, NBL build potential profit boxes

Guinness Nigeria extends IPS brands distribution model date

Two major players in the Nigerian brewery industry, Guinness Nigeria Plc and Nigerian Breweries Plc are building potential profit boxes with expansion and acquisition of other breweries.

Analysts, who assessed their recent acquisition strategy, say that the brewers are diversifying their likely profit pool more than they would have if they were limited to one brand.

Though the brewers could have the challenge of keeping their multi-brands apart so that they don’t end up cannibalising sales, the analysts say the strategy if well managed could potentially help grow their profits by north of 20 percent or more per annum.

Industry watchers said that warding-off competition in Nigeria’s lucrative beer industry and the appetite for gains were largely the overriding reasons the dominant brewers embarked on the massive expansions and acquisitions of brands

Fear of sticking to one flagship brand and its consequences in the face of the entry into the market of a South African and world number two brewer, SABMiller may have made the dominant Nigerian brewers create multi-brands through acquisition of brewing companies to continue to keep their market share.

SABMiller had in 2009 bought Pabod Breweries, Port Harcourt, with controlling interest of about 57 per cent, Voltic Nigeria Limited (Voltic produces table-water), Lagos, owning 80 per cent of the company, and Standard Breweries in Ibadan.

Analysts say SABMiller used these acquisitions as a means of soft-landing into the Nigerian market.

John Audu, a Lagos-based media and marketing analyst, said the companies (Guinness and NBL) are facing competition as they struggle to expand their profit base.

Read also: Performance analysis of players in the Nigerian brewery industry

Guinness Nigeria reported in February that net income slid to N6.42 billion ($40.8 million) for the six months ended December 31, from N7.62 billion a year earlier.

Nigerian Breweries – the country’s biggest brewer by market value – said in February that full-year profit was stagnant in 2012 as an aggressive expansion plan increased its costs.

Net income for the 12 months through December was N38.1 billion ($241 million), compared to N38 billion a year earlier.

Speaking off record, a CEO of a marketing communication agency said the reasons organisations acquire other companies are normally influenced by many factors.

“But largely what you find influencing such acquisitions is profitability”, the CEO said.According to him, “In any market where there is near duopoly, there is stiff competition, and the players will be at each other’s neck fighting for domination and profit.”

Nigerian Breweries Plc, incorporated in 1946 and which has about six brewery plants across the country, had in 2011 acquired a majority stake in Sona Systems Associates Business Management Limited, with two breweries in Ota and Kaduna, and Life Breweries Company Limited (Life Breweries) with a brewery in Onitsha.

Sona Systems and Life Breweries were merged into an enlarged Nigerian Breweries in the middle of 2012.

The company’s website said that following the acquisition of Sona Systems and Life Breweries in 2011, Goldberg Lager, Malta Gold, and Life Continental Lager were added to the company’s brand portfolio in addition to its flagship brands – Star, Heineken, Gulder and Legend.

The report further said the acquisition will enable Heineken (majority shareholders in NB) to take advantage of the attractive future growth opportunities that exist in different regions of the country.

Guinness Nigeria Plc, according to an earlier BusinessDay report, also recently heightened the tempo of the ongoing beer war by announcing plans to spend N52 billion ($335.8 million) on the expansion of its brewing capacity in the country.

“The Guinness move, is no doubt, an apparent response to the Heineken N.V.’s acquisition of two holding companies from the Sona Group, which has controlling interests in five breweries in Nigeria, and SABMiller Africa’s entry into Nigeria,” said a beer industry analyst.

Already, Guinness has various brands in the market which include Guinness Extra Stout, Satzenbrau, Harp, Smirnoff Ice, and Snapp among others.

Vetiva Research had in a recent report predicted a booming market for investors in the beer market in Nigeria.

It argues that ,“a growing, largely youthful population, with increased disposable incomes is expected to drive beer consumption, leading us to estimate that the Nigerian beer market will grow at an average of 8 percent over the next five years.”

Nigerian Breweries stock has advanced 8.84 percent this year, below an 18.72 percent gain on the Nigerian Stock Exchange All-Share Index (NSEASI), while Guinness has lost 5.45 percent year to date, also underperforming the wider index.