Wine consumption in Nigeria dropped to the lowest in five years on the back of rising inflation and depreciation of the naira, BusinessDay analysis of a new report from a London-based market research company shows.
Over the past few years, many Nigerians have opted for wine due to its affordability as against champagne which has become more expensive since 2016.
The report by Euromonitor International shows that the total volume sales of wine in the formal market fell by nine percent to 31.5 million litres in 2023 from 34.7 million litres in the previous year. But it is expected to pick up to 32.4 million in 2024.
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“As in most alcoholic drinks categories, wine was heavily impacted by poor economic conditions in 2023. Lower consumer spending arising from the impact of high fuel prices and the depreciation of the local currency led to declining volume sales,” the report said.
It noted that with the vast majority of wine brands being imported, the depreciation of the local currency had a key impact on wine prices, leading to a strong increase in average unit prices.
“Red wine is the largest product in alcoholic wine, with sales impacted by rising prices and inflationary conditions. It is generally cheaper than white wine varieties, with many consumers introduced to wine through the cheap Don Simon and Baron Romero red wine brands.”
Africa’s fourth largest economy’s attractive characteristics such as demography, increased health consciousness, and upward social trends are assisting growth in wine exports to the country.
Nigeria imports wine from Spain, Italy, Brazil and South Africa. It is not locally produced in Nigeria, which does not have favourable weather conditions and good soil for its production.
“Wine is a relatively niche category in Nigeria that is growing from a low base, due to the growing desire for novel types of alcoholic drinks among Nigerians and an increase in the female drinking population,” authors of the Euromonitor report said.
Wine is typically consumed on social occasions at parties and in clubs. But the price of wine, which used to sell for between N2,000-N5, 000, has more than doubled.
Victor Ikem, a Lagos-based wine retailer, said most of the imported wines are procured in foreign currencies and have become expensive due to the dollar crunch.
“From around N500 to one dollar in mid-year 2023, the exchange rate went up as high as N1,000 to the dollar by end of the year and is currently exchanging for over N1,500 in July 2024,” he added.
According to Ikem, this has greatly impacted consumer purchasing capacity for most products, including wines and spirits, noting that costs of imports have surged. “This has also limited the ability of importers to ship larger quantities which has equally resulted in scarcity of some famous brands.”
The liberalisation of the foreign exchange regime last year has weakened the naira from 463.4/$ to 1,586/$ as of August 22 2024. At the parallel market, the naira depreciated to 1,610/$.
The FX reform has also led to the adjustment of the exchange rate for cargo clearance at the nation’s seaports four times from June to December last year. The rate increased to N952/$1 from N422.30/$1. This made importers pay more import duty for the clearance of their goods.
Data from Comité Champagne, a trade association that tracks volume and value of exports from France, shows that the country’s champagne import volumes fell by 53.2 percent to 302,141 bottles last year from 646,036 bottles in 2022.
“The decline in the value of the naira affected the purchasing power of consumers, making them buy less luxury products like champagne,” Babatunde Odumeru, managing director at Brand Finance Nigeria, said.
Over the past year, the inflation rate in Africa’s most populous nation has accelerated to a record high owing largely to the Federal Government reforms, including the removal of petrol subsidy and naira devaluation.
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The country’s headline inflation rate rose to 33.40 percent in July from 34.19 percent in the previous month, according to the National Bureau of Statistics.
“Wine production has dropped in Nigeria because energy prices have been going up, hence the cost of generating energy used to run the machinery for producing wine has increased, especially diesel,” Uchenna Uzo, professor of marketing at Lagos Business School, said.
“The cost of raw materials has not dropped because of the high inflation rate. When people saw it was cheaper to import than produce, they moved to importation, especially from neighboring African countries,” he said.
He said wine consumption is still high so production will pick up because of the large consumer base and also the export potential.
“There is talent required for wine production and there are a lot of wine variants that we can’t produce on this side of the world which limit the options we have for wine production,” Uzo further said.
