Nigerian brewers: Battling for dominance in troubled terrain

Nigeria, Africa’s economic powerhouse, is the second largest beer market in the continent. With an annual beer consumption of about 16 million hectolitres according to Morgan Stanley, a foremost investment firm, Nigeria’s per capita beer consumption is about 10 litres per annum compared to a global average of 35 – 40 litres.

For more than two decades, the country’s brewery landscape has been dominated by Nigeria Breweries (NB), a subsidiary of Heineken, the Dutch brewery giant, and Guinness Nigeria Plc, a subsidiary of Diageo. Other brewers such as International Breweries, Intafact Brewery, Champions Brewery, and Pabod Brewery are also looking to have a share of the industry’s action.

The combined market capitalization of NB, Guinness and International Breweries on the Nigeria Stock Exchange (NSE) as at 9^th April 2018 stood at N1,678 billion.

 

The push for brand presence: riding the boat of Marketing Expenses

Performance in the brewery industry has mirrored occurrences in the macroeconomic space. For instance, 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 love to more pocket-friendly substitutes.

Following the exit of the country’s economy from recession in second quarters of 2017, brewers intensified their scramble for consumers’ loyalty and increased market visibility via strong marketing campaigns and expanded distribution outlets.

In 2017 alone, a total of N97.3 billion was spent on marketing and distribution by the three major brewers; this amount was 8.4 per cent more than the N89.8 billion the brewers expended in the preceding year. While Nigeria Breweries spent 19.4 per cent of total revenue (N66.9 billion) on marketing and distribution expenses, Guinness Plc. spent N25.3billion, 20 per cent of total revenue.

To further deepen market penetration through increased distribution channels, Guinness added 5 more outlets, bringing their distribution outlets to 66 at year end 2017.

International Breweries also increased their marketing and distribution expenses from N3.4 billion in 2016 to N5.1 billion in 2017; this represented 15.6 per cent of total revenue earned for the period under review.

 

Who is winning the battle for market share?

A report published in December 2017 by the BRIU titled “The Nigeria Brewery Industry Snapshot”, noted that the industry has revealed a somewhat zero-sum scenario in the last five years, as Nigerian Breweries (NB) has continued to grow market share each year. On the other hand, Guinness recorded shrinking market share as International Breweries trailed behind them.

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 for AB InBev’s International Brewery stood at 6.5 per cent, up 1.2 percentage points relative to 2016.

Revenue Profile of Brewers

The available financial metrics put NB way ahead of its rivals. The revenue figure for NB Plc. at year end 2017 stood at N344,563 million, up by 9.8 per cent to N313,743 million in the preceding financial year. This is attributable to increased sales volume in the economy or value brands.

Expenses propped up Year-on-Year (YoY) by 10.8 per cent to N289,660 million compared to N261,456 million in 2016. The expansion in expenses account of NB was majorly due to an increase in the cost of raw materials and consumables which spiked by 13.4 per cent to N128,857 million in 2017.

Most of the raw materials and consumables such as barley and sorghums needed for the running of breweries are sourced internally with attendant price increase shooting up cost.

According to Beverage Industry News, an indigenous online repository of trade news about the Nigerian beverage industry, NB aims to source 60 per cent of its raw materials locally by 2020 in a strategic move to boost local raw material production and more importantly reduce the volume and bourgeoning value of imported raw materials.

Guinness Nigeria rebounded with a YoY revenue growth of 23.5 per cent from N101,973 million in 2016 to N125,919 million in 2017. The year was equally a cheerful one for the brewer after it posted a profit after tax of N1,923 million following a loss of N2,015 million a in 2016.

International breweries equally had a stellar performance with a bourgeoning revenue of N32,711 billion in 2017 compared to N23,269 billion in 2016.

At year-end 2017, the earnings per share (EPS) of NB hit N4.13k from N3.58k in 2016 indicating that the company is making more profit per its outstanding common stock. Guinness on the other hand has an EPS of N1.28k, up from a negative N1.34k in 2016. International brewery’s EPS decline to 31k from 81k in the preceding year.

 

. . . As AB InBev’s attempts uncommon disruption

AB InBev seeks to seize the greatest share of the industry and end Nigeria Breweries’ close-to-a-decade industry dominance. With the recent merger of International, Intafact and Pabod breweries under the trading name of “International Brewery Plc”,  the world’s largest brewer who eventually became the indirect parent company of the three aforementioned brewers, is almost certain to achieve its aim.

Prior to AB Inbev takeover of the three Nigerian brewers, SABMiller was the parent company of International Breweries, intafact Breweries, and Pabod breweries. According to Chukwu, the consolidation is to allow for operational efficiency, which is expected to increase AB InBev’s profitability in the industry.

 

Global brands as weapons of market control       

In the fight for increased market presence, the brewers introduced new internationally recognized brands their respective parent companies. In December 2017 for instance, NB introduced the Stellar Beer, a global brand of Heineken.

“This had an encouraging initial feedback,” affirmed NB management.

Guinness on its part equally commissioned a £12million production line in its Benin plant for local production of some of Diageo’s international brands such as McDowell’s VSOP, Smirnoff X1 Intense Chocolate Vodka, and Gordon’s Dry Gin.

Aside the multi-million dollar plant they are currently constructing in Sagamu, Ogun state, Anheuser-Busch (AB) InBev (which recently acquired Internatiuonal Brewery), plans to hit the Nigerian beer market soon with its two major global brands: Budweiser and Beck’s.

The introduction of Budweiser and Beck’s will set off a competition in the high end of the market in which NB’s Heineken and Guinness’s Foreign Extra Stout already hold sway.

“One in almost every five beers sold in the United States today is a Budweiser,” RateBeer.com, an online beer-rating site said.

Analysts expect that this will have far-reaching effects on the scramble for dominance given its popularity in its present market.

“Budweiser will definitely have a market for itself in Nigeria and may aid AB InBev to chop off a sizable market share for itself” affirmed Johnson Chukwu, Managing Director of Cowry Asset Management who spoke to Businessday Research and Intelligence Unit (BRIU) via telephone.

Similarly, Beck’s is the world’s number one German brand with presence in over 85 countries.

Considering that Nigerians always like to try out new things, especially one with international affiliation, and given the instability in consumers’ disposable income, the stage appears set for a fierce fight by the brewery giants in 2018.