• Friday, March 29, 2024
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BusinessDay

Beer wars: AB InBev Budweiser takes on NB, Guinness

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Anheuser-Busch InBev (AB InBev), the world’s largest beer maker has fired the first shot in the triangular beer war between it and the other two beer giants (Nigerian Breweries and Guinness Nigeria), with the launch of its premium brand, Budweiser into the Nigerian market on Sunday.

The ‘King of Beers’ is set to compete in the premium segment of the market with already established premium brand like Heineken, and Guinness Stout.
“We believe NB’s negative volume growth in 2017 will move management to defend market share and given that AB Inbev’s upcoming capacity is a major threat to NB and Guinness Nigeria, we do not expect material price increases in 2018,” said Renaissance Capital’s consumer goods and retail analyst Adedayo Ayeni in a recent report on the sector.
“Management repeatedly identified the competitive risk from AB Inbev during the 2017 results conference call and while it appeared confident in its ability to protect market share (which we now estimate declined to 58% in 2017) its portfolio of mainstream and premium brands will still be dilutive to volume growth.”
RenCap forecasts sub-inflationary beer price increases of 6.2 percent and 6.0 percent in full year 2018 and 2019, respectively for Nigerian Breweries, which together with growth of brands like 33 Export, Goldberg and Life lager (which are priced above AB Inbevs Trophy and Hero) could lead to pressure on margins.

“We expect gross margins to decline by 180 basis points to 39.9% in FY18,” Ayeni said.
The two major established brewers in Nigeria however seem not ready to be taken unawares and are already gearing up for the ‘beer war’.
Jordi Borrut Bel, CEO of Nigeria Breweries (NB) said the company is used to competition as Nigeria has always been a very competitive market in the past with NB facing two strong competitors like Diageo and SAB and AB Inbev stepping into the market through SAB adds to that competitiveness.
“In 2018 we expect the operating environment to remain challenging, although we remain confident that we have the right strategy, people, operations and brands to keep delivering value for our stakeholders and we are well placed to capture value when the economy recovers,” Borrut Bel said during the company’s conference call monitored by BusinessDay.
The Nigerian Breweries CEO added, “If you look at our track record over the past years we have successfully engaged the competition and I don’t see any reason why we shouldn’t be able to continue to do so in the future.”
Nigeria is the second largest beer market in Africa and consumes some 16 million hectolitres of beer a year, about half as much as in South Africa, the continent’s biggest beer market.
The country’s per capita beer consumption is about 10 litres a year, compared to a global average of 35-40 litres, according to Morgan Stanley.
An expanding Nigerian middle class and youthful population is helping drive beer demand, according to Euromonitor, which estimates the market was worth about N837 billion or $2.7 billion as at the end of 2016.
SAB Miller made inroads into the Nigerian market in 2009 when it acquired Port Harcourt-based Pabod Breweries, makers of Grand lager beer, and Ilesa-based International Breweries, makers of Trophy lager.
In 2012, SABMiller established a $100 million brewery in Onitsha, which makes the Hero lager brand.
Sources tell BusinessDay that Budweiser will be brewed at the Onitsha Brewery.

AB InBev, the world’s largest brewer, acquired SABMiller, South Africa’s largest brewer, in 2016.
More troubling for the other brewers (NB and Guinness Nigeria), is AB Inbev’s possible gravitation towards price cuts as it sees ensuing margin improvements across its operations post-merger of its Nigerian assets.
Speaking on the outlook for margins in 2018, Peter Ndegwa, CEO of Guinness Nigeria said the intention of Guinness is to remain competitive and match the level of margins that others in the industry are delivering.
“In terms of the margin numbers that we have reported, if you look at different quarters, there has been a little bit of volatility in margin delivery, our advice to investors is to look at the year in total and take out any phasing issues that we may have quarter on quarter,” Ndegwa said during the conference call for its Full year 2017 results.
Ndegwa said Guinness Nigeria would not disclose if there would be a price increase in 2018 which would not only be dependent on the competitive environment but also the level of inflation and FX rate.
Budweiser’s launch coincides with the launch of a newly-completed $250 million 2.0mn hectolitres greenfield beer factory in Sagamu, Ogun state, and the plan to consolidate its assets and list the three aforementioned firms (International Breweries, SAB Miller, Pabod) as one entity on the Nigeria Stock Exchange (NSE).
The head of Ab Inbev’s Africa operations, Ricardo Tadeu said in a statement that a new plant became necessary in order to address supply constraints that had limited sales of the company’s products to areas close to existing plants.
Tadeu noted that 70 percent of the company’s raw materials such as cassava, millet and sorghum as well as packaging materials are sourced locally.
A report published in December 2017 by BusinessDay Research Intelligence Unit (BRIU) titled “The Nigeria Brewery Industry Snapshot”, noted that the industry has revealed a somewhat zero-sum scenario in the last five years.

According to BRIU analysis, NB shed 3 percentage points as its market share declined from 71.5 per cent in 2016 to 68.5 per cent in 2017, suggesting a waning position as the undisputed industry leader.

Guinness Nigeria’s market share was 25 per cent in 2017 compared to 23.2 per cent in 2016, while that of AB InBev’s International Brewery stood at 6.5 per cent, up 1.2 percentage points increase relative to 2016.
Performance in the brewery industry has mirrored occurrences in the macroeconomic space.
The recession that hit the country in 2016 had a debilitating hit on the brewery industry as the ensuing liquidity crunch led to sharp drop in the disposable income of consumers who reduced patronage for their favourite beer brands, or shifted their tastes to more pocket-friendly substitutes.
Following the exit of the country’s economy from recession in second quarter of 2017, brewers intensified their scramble for consumers’ loyalty and increased market visibility via strong marketing campaigns and expanded distribution outlets.
“The Budweiser brand will take a share from the market as it is only normal for people to try out new brands when they see it,” Wale Okunrinboye, a Lagos-based investment researcher told BusinessDay by Phone.
“Due to the merger, Ab Inbev is doing what other firms in the industry have done in the past by introducing its foreign products into the country,” Okunrinboye, said.
RenCap says it has cut full year 2019 to 2020 Earnings before interest, tax, depreciation and amortization (EBITDA) forecasts by 9.6 percent on average for Guinness Nigeria.
“Our downward revisions to Earnings per Share, and Free cash flow (FCF) have driven a cut to our Guinness target price by 15.7percent to N103.3 per share, maintaining HOLD rating,” Rencap said, adding;

“We raise our TP for Nigerian Breweries (NB) by 1.0% to NGN110.3/share and maintain our SELL rating.”

International Breweries shares have returned -8.26 percent, Guinness Nigeria +9.57 percent and Nigerian breweries -5.93 percent, respectively year to date.

 

ENDURANCE OKAFOR & DIPO OLADEHINDE