Sachet alcohol ban to trigger more hurdles for manufacturers – analysts

The ban on alcohol in sachets and small plastic bottles could create more hurdles for manufacturers that play big in that segment of the market, analysts have said.

As Nigeria’s stunted economic growth squeezes consumer wallets, more businesses have been forced to rebrand products and services into smaller packages (sachetisation) to boost profitability by targeting low-income earners.

But the National Agency for Food and Drug Administration and Control (NAFDAC), on Monday, banned the packaging of alcohol in sachets and small bottles with the aim to cut availability and consumption. Analysts believe with this development, the firms might be facing declining sales.

“It will affect their sales because sachet packaging is mainly to make products available and affordable to those at the bottom of the pyramid. It has become necessary as a result of the high level of poverty in the country,” the immediate past director-general of Nigeria’s largest business think tank, the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said.

According to the National Bureau of Statistics (NBS), 40 percent of Nigeria’s total population, or almost 83 million people, live below the country’s poverty line of N137,430 ($381.75) per year.

The pandemic also has pushed an additional 11 million Nigerians into poverty, according to the World Bank.

“NAFDAC must have their reasons but I am sure these companies will be given some time to adjust and look for other forms of packaging for their products,” Yusuf said.

According to the NAFDAC boss, Mojisola Adeyeye, the move was made to curtail alcohol abuse in the country following a matching order given to the Distiller and Blenders Association of Nigeria to embark on intensive nation-wide sensitization campaigns against underage consumption of alcohol by adolescents below the age of 18 years.

Read also: NAFDAC moves to cut alcohol consumption in Nigeria

There are three major companies that produce distilled spirits in Nigeria: Intercontinental Distillers, Nigeria Distilleries and Stellar Beverages.

Intercontinental Distillers produce sachet alcohol drinks such as Chelsea London Dry Gin, DeRok Chocolate Liqueur, Squadron Blended Dark Rum, Eagle Aromatic Schnapps Action Bitters, Bull London Dry Gin, and De Rock. Others like Big Ben London Dry Gin, Captain Jack, and Royal Standard are made by Stellar Beverages, while Seaman’s Schnapps is made by Nigeria Distilleries.

“Producers of alcohol in sachets and small volume agreed to reduce production by 50 percent with effect from January 31st, 2022 while ensuring the products are completely phased out in the country by 31st January 2024,” Adeyeye said.

She also stated that the agency will ensure that the validity of renewal of already registered alcoholic products in the affected category does not exceed the year 2024.

According to the World Health Organisation (WHO), alcohol consumption contributes to three million deaths each year globally as well as to the disabilities and poor health of millions of people.

A study conducted by the US Centre for Disease Control (CDC) in August 2020 revealed that 94 percent of the COVID-19 casualties recorded during the study period had underlying health issues linked to or exacerbated by alcohol consumption.

The NBS and the Centre for Research and Information on Substance Abuse said in a report in 2019 that nearly 15 percent of the adult population in Nigeria (around 14.3 million people) used some level of psychoactive drug substances, from 5.6 percent in 2016.

According to AsokoInsight market data, beer is the most widely consumed alcoholic beverage with a 55 percent market share, followed by spirits (30 percent) and wine (15 percent). Spirits are gaining traction, with Guinness Nigeria now focusing attention on the segment.

Ayorinde Akinloye, a research analyst at United Capital plc also said the impact of the ban will be felt more on small-scale players who operate in this segment but could be a win for other large-scale established players.

The dominant consumers of alcohol in sachets and small bottles are low-income earners, just as the predominant retailers of alcohol in this packaging are small businesses who own small kiosks or even hawk their wares.

FX crisis has been a major nightmare facing manufacturers and brewers have not been spared.

According to a 2021 report by Afrinvest, Nigeria’s protracted FX scarcity occasioned by reduced inflows from crude oil sales and the resultant currency pressures has continued to impact the cost structure of brewers such as Nigerian Breweries, International Breweries and Guinness.

The report stated that despite the adoption of backward integration policy aimed at increasing the share of locally produced raw material in production inputs, Nigeria’s major brewers still depend on large raw material importation to bridge the gap created by domestic supply gaps.

Nigeria is not the first country to make this move. Countries like Uganda, Tanzania, Ivory Coast, Senegal, Malawi and Rwanda have also banned alcohol in sachets to protect their youths and environment.

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