Due to new excise duty, double-digit inflation and challenging operating environment, Nigeria Breweries is considering an increase in price of its products across board in order to remain sustainable.
Speaking at the company’s pre-annual general meeting, Jordi Borrut Bel, CEO of Nigeria Breweries, said he expects the challenges in the operating environment to remain the same in 2019, although he remains confident the firm has the right strategy to deliver the right value for its business model.
“We want to ensure our strategy to remain competitive is paying off in terms of growth, although we need to increase prices to compensate for the inflationary pressures that we are facing and probably excise duty,” Borrut Bel said.
He said Nigeria Breweries is looking at its portfolio brands and trying to maximise its value combination either in increasing prices or selling more of the brands.
“Although we need to maximise our revenue, it does not mean we will increase prices nor do that on a certain date. We will follow our consumers closely and remain competitive.
We will not do something that sets us apart from our consumers. We will monitor what our competitive situation is and what our consumers desire,” Borrut Bel told BusinessDay on the sidelines of the event.
In June last year, the Federal Government announced an increase in excise duty rates of N30 per litre for alcoholic beverages, tobacco and others, a move many consumers feared would mean additional cost for their favourite brands.
“For our company, it translated to approximately a 43 percent increase from the previous average rate of N21 per litre; it was difficult to pass on this extra cost to consumers in view of weak purchasing power, added to the already challenging operating environment,” Nigeria Breweries said in its 2018 report.
Results from operating profit went down from N57 billion to N37 billion in 2018 due to higher excise duties and other operating costs while profit after tax ended at a disappointing N29.42 billion as against N46.63 billion in 2017, representing a decline of 36.9 percent as the brewer posted a net revenue of N324.38 billion in 2018 against N344.52 billion in 2017, down by 5.8 percent.
Reacting to the firm’s investment profile on backward integration, Borrut Bel said, “Two things are involved which are the packaging and raw materials. 100 percent of the packaging comes from Nigeria while 60 percent of our raw materials are sourced locally.
“We will continue to work closely with the farmers and integrate them although we have our own technical assistants that help these farmers and this encourages better yields.”
For makers of beer in the country, the battle for market leadership is very stiff. The harsh economic environment has seen profit margin reduce drastically.
Low purchasing power of consumers means makers cannot increase price to cover the increasing operating cost. Epileptic power supply and the notorious bad road network, most especially the gridlock in Apapa, the nation’s busiest port, have hampered the profitability of the major players in the country.
Despite these challenges, makers of beer are still making entry into Africa’s largest market, Nigeria, with an average population of 21 years.
According to a report by market research group, Global Data, Africa is the fastest growing region for beer consumption. Nigeria, however, leads the pack of 10 biggest beer-drinking countries on the continent. Beer brands make up just 16 percent of alcohol consumption in the country, while other drinks (spirits and locally-brewed drinks) make up 84 percent.
In Nigeria, the race for the biggest beer market share in the country was once a two-horse race between Heineken N.V., owner of Nigerian Breweries plc, and Diageo, owners of Guinness Nigeria.
Interestingly, the narrative changed in 2011 when there was a disruption in the beer market with the arrival of SABMiller, then the world’s second-largest brewer, into the country, and its acquisition of majority shares in International Breweries plc, maker of Trophy Beer, located in Ilesa, Osun State.
To further extend its market presence, a merger arrangement was consummated with International Breweries plc and two other local brewers: Intafact Beverages Limited, makers of Hero which is popular in the South-Eastern part of Nigeria, located in Onitsha, Anambra State, and Pabod Breweries Limited, makers of Grand Lager, located in Port-Harcourt. All these plants are now controlled by AB In Bev.
In anticipation of the arrival of AB In Bev into the country, Nigerian Breweries plc also acquired some regional breweries across the country. The company recently introduced the Tiger Beer brand into the Nigerian market. The company acquired a controlling interest in Sona Group in January 2011 and also merged with Consolidated Breweries plc, thereby adding its three breweries in Ijebu-Ode, Awo-Omamma, and Makurdi to the Nigerian Breweries.
Nigerian Breweries owns two key brands in the premium lager segment, Heineken and Tiger, which are facing tough competition from International Brewery’s recently-launched global brand, Budweiser, while Guinness Nigeria has Harp in this segment.
In the malt segment of the market, Nigeria Breweries’ malt segment suffered in recent years, but the brewer still leads this space with its Maltina, Amstel Malta, Maltex, and Hi-Malt brands.
