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Brewers: Do higher promotional expenses translate to greater market share?

Four years ago, 71 percent of the Nigerian beer industry was dominated by Nigerian Breweries (NB) while International Breweries (Interbrew) managed five percent.

By 2018, the market leader had lost 15 percent of its market share while the recently merged-Interbrew increased its footing by 16 percent, imitating similar trajectory of its promotions spending.

The Nigerian brewery industry has seen intensified competition in more recent times amid tepid growth on the heels of the country’s sluggish economic recovery and inability to pass the cost to consumers who themselves suffer weak purchasing power.

Since increasing market share implies greater sales compared to peers, conventional wisdom requires companies to engage in activities that boost awareness and create a psychological need for their products. Experts say established brands may not spend as much as newer ones.

Overall, listed beer makers have spent a total of N387 billion on sales promotions since 2015. After spending N86 billion in 2015, players increased spending by five percent in 2016, nine percent in 2017 and 2018, spent 15 percent more than the previous year to record some N113 billion expenses.

Despite the steady increase in promotional expenses, industry sales growth has remained relatively flat at 11 percent per annum from 2016, although it rose to 12 percent in 2017 before a U-turn the year after.

But a closer look at trends for industry players suggests that International Breweries increased promotional expenses have paid off in greater market share.

The firm grew promotional spending by 42 percent in 2017 and saw market share rose slightly to 6 percent from 5 percent a year earlier. Likewise in 2018, promotional expenses surged 312 percent to about N21 billion, while market share jumped from 6 percent to 21 percent.

The company’s increased marketing and promotion activities might have been supported by its merger with United States’ Anheuser-Busch, and whilst translating to increased patronage of Interbrew products in a fiercely competitive beer industry, it has also resulted in a spike in expenses as seen in the first quarter of 2019.

A look at Guinness’s numbers showed declined spending on promotions might have contributed to its decreasing market share.

In 2016, the Diageo-owned firm grew promotional spending by 2 percent, with market share standing at 27 percent. In 2017, it grew to spend by 3 percent, and market share remained unchanged at 27 percent. A year after it cut sales promotion by 8 percent, and saw market share trended lower to 24 percent.

It should be noted that Guinness runs a different calendar year from its industry peers.

For the biggest industry player, Nigerian Breweries (NB), market share has headed southwards despite spending more on sales promotion. In 2016, the firm grew promotional spending by 7 percent with market share standing at 68 percent.

A year after NB grew promotions further by 10 percent but market share slid to 66 percent. In 2018, the beer makers spent 8 percent less on sales promotions and saw market share reduce to 56 percent.

Nigerian beer makers have been facing rapidly-rising expenditure and slowly-growing revenue in the last five years. As the industry profit margin declined to record low levels, so also has its stock prices declined in response.

According to data compiled by BusinessDay, industry’s return on equity has fallen from some 22 percent in 2014 to 14 percent in the 2016-tainted recession year, and further worsened to 7 percent in 2018.


Segun Adams & Israel Odubola

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