The increasing competition in Nigeria’s beer market is leading to unfounded claims of marketing gimmicks to create brand loyalty, even as Nigerian Breweries remains the dominant player among the country’s beer manufacturers, writes PATRICK ATUANYA
Achange in strategy by Nigeria’s dominant brewers has intensified competition in the sector.
Nigerian Breweries (NB) the country’s largest brewer by market value and Guinness Nigeria (GN) are the dominant players, who are adjusting to the fluid alcoholic beverage market.
Over the years, the struggle for market leadership between the two companies has taken many dimensions. There has been corporate struggle between the two concerns and there have been brands’ war in various categories.
“Guiness Nigeria had previously been happy to concentrate on the premium segment, leaving the value segment and the mainstream to NB; however, consumers’ low spending power has prompted GN to change tack,” said Omair Ansari, SSA Breweries analyst at Renaissance Capital, in an August 27 note.
One of the new change in direction traced to Guiness Nigeria is the advertorial published in some national newspapers on Friday, August 29, 2014, in which a non-governmental organisation; Consumer Rights Advocacy Network of Nigeria (CRANN), raised the alarm that pirate marketing was going on in the alcoholic beverages industry.
The public announcement was titled ‘Wake up Call to Consumers!”. Under an artistic illustration that shows mimic beer bottles, one big, the other small, the campaigner asked; “Is it legal to give incentives to distributors to remove a competitor’s brands from the market just to sell yours?”
It went on to state that; “In the past several months, evidence has shown that one of the prominent breweries in the country has embarked on a vigorous and evil campaign of de-marketing its key rival and competitor. The brewery in question goes to major retailers across Nigeria and offers very juicy incentives for them NOT to stock display or sell the products of its competitor.
“The brewery utilising this pirate approach to marketing has created a situation in which ONLY its products- including a number of beer brands, a Malt drink, and dark ale brew – are the ones available in the market in very many locations in the country.”
Since the public announcement was published, some stakeholders wondered why the tone of the advocacy has suddenly gone negative, with unfounded allegations.
The Chief Executive Officer of Political and Administrative Resource center, Adebayo Afolabi, said: “To me, this is a mere blackmail and pseudo marketing by CRANN and its sponsors. The question we should all ask is what is the interest of a non-governmental organisation in an issue related to beer consumption? I took pain to follow up the various advertisements and I conclude that they were sponsored by Guinness Nigeria. The brewery giant simply saw the obscure organisation as a tool and explored it.
Unfortunately, it is a bad approach because the huge amount spent on the campaign of calumny would have been invested in things that can drive sales. It simply pointed to the fact that Guinness is trying to shift the blame of its recent poor performance in the market place on competition,”
According to Adebayo, rather than resorting to such, what Guinness should have done was to go back to drawing board and re-strategise. The analyst, who claimed to have seen it coming faulted Guinness distribution network. Citing example of how poor distribution cost the brand its position in the market, he mentioned how many patrons of Gordon Spark had dropped the brand for rival product because of the difficulty they often encountered while struggling to lay hands on it. He also referred to how poor distribution killed Satzenbrau.
Analysts at Renaissance Capital, shed more light on problems confronting Guiness.
“Nigerian Breweries has a larger distribution network and is more efficient from a cost perspective than Guiness Nigeria (GN), and we do not believe this will change. We believe GN will experience a pick-up in costs as it attempts to regain lost market share,” said Ansari, the Rencap analyst who adds that, with the proposed consolidation of NB and Consolidated Breweries, NB will retain its dominant position in the market place, accounting for close to 70 percent of market share.
The Chief Executive Officer of Heineken the major shareholder in Nigerian Breweries told BusinessDay that they had anticipated the huge growth in the Nigerian Beer market from 2003 till date and had invested to keep pace with demand unlike some of the competition.
“Nigeria is our largest brewery operation in Africa and second largest in the world after Mexico,” Jean-Francois van Boxmeer, Chief Executive Officer of Heineken (the major shareholder in NB), said in an interview with BusinessDay, on the sidelines of the World Economic Forum (WEF), held in Abuja in May 2014.
“We are the market leader for decades and have been investing ahead of the curve. If you are too cautious, you can miss the boat,” said van Boxmeer.
Competition is increasing in the sector as consumers continue to get squeezed by the aftermath of the increase in fuel pump prices of 2012.
Rencap notes that as consumers face financial constraints, brewers have had to put greater focus on pricing strategy, with the value segment gaining market share leaving only those brewers that were ready for this trend to benefit.
“We have recently spent time with large local distributors and vendors for the main brewers and come away with the clear message that Heineken has been able to maintain its predominant position while GN shareholder Diageo continues to slide on the beer front,” said the Rencap report.
The Nigerian beer market has historically been a duopoly, with NB and GN dominating the landscape.
SABMiller however joined the market through its 2012 acquisition of International Breweries.
SABMiller saw double-digit lager volume growth in Nigeria in FY14, underpinned by 23 percent volume growth in its Trophy lager brand, while Hero lager volumes more than doubled as the firm increased capacity at its Onitsha brewery.
Analysts say the rise of SABMiller is a threat to both NB and GN, meaning they may need to watch their flanks as opposed to dissipating all energy attacking each other.
Rencap has a HOLD on Nigerian Breweries with target price (TP) of N187 and a SELL on Guinness Nigeria with TP N164.
“The operating environment remains tough with the consumer under pressure and price elasticity extremely high. The winner in such an environment will always be the brewer that can marry good distribution with affordable quality products, hence our preference for Nigerian Breweries,” Ansari said.
GUINNESS Nigeria’s recently released 2014FY result showed an 11 percent decline in revenue recorded (N109.20bn vs. N122.64bn in 2013FY).
The company has consistently posted negative top-line growth for the past five quarters, and according to management, pricing disadvantages, weakening growth in the premium segment compared to the value segment and aggressive competition accounted for the disappointing performance.
Nigerian Breweries most recent results released in July showed that its half year 2014 pretax profits grew 14.4 percent to N33.88 billion, as revenues rose by 5.7 percent to N141.49 billion, compared with N133.81 billion in the same period of last year.
