• Saturday, June 15, 2024
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Tough times for brewers as margins hit by social restrictions

Nigeria’s brewers have managed to survive the COVID-19 pandemic in the first half of the year, but not without recording losses and revenue decline.

COVID-19 has forced governments at the federal and state levels to shut down bars, night clubs and social gatherings to curb the spread of the virus. But this has come at a huge cost to brewers who now struggle to make profits as a result of poor sales.

Nigerian Breweries (NB), a giant brewer controlling over 50 percent beer market, recorded a revenue decline of 11 percent to N151 billion in the first half (H1) of 2020. The firm’s profit after tax declined by 58 percent, from N13 billion in H1 of 2019 to N5.5 billion in the same period of 2020. Consequently, poor revenue forced the company to cut its administrative and marketing expenses as the situation demanded, NB’s financials show.

Similarly, International Breweries experienced revenue decline of 12 percent, recording N60 billion in H1 of 2020 as against the N68 billion in the previous year. It further recorded N9.3 billion in its loss after tax, representing a 37 percent increase in its loss profile.

Guinness as well is showing signs of struggles as its most recent financials for the period ended March 2020 recorded revenue decline by 18 percent, earning N27 billion in Q3 2019 as against the N33 billion realised in Q3 2018.

Furthermore, the firm’s profit after tax dropped to N46 million in the period under review, representing a 97 percent decline from the N1.6 billion realised in the corresponding period of 2018. This, however, cannot be tied to the pandemic but to Nigeria’s poor economic fundamentals.

Analysts also attribute brewers’ general margins decline to shift in consumers’ lifestyle and spending.

Ambrose Oruche, acting director general, Manufacturers Association of Nigeria (MAN), in a phone conversation, said that the impact of the pandemic varies on the subsectors due to the type of services the sectors render, which explains why some made losses while others recorded marginal profits or boom.

“The pandemic boosted sales of essential products which were very necessary during the lockdown, especially the food and healthcare subsectors,” Oruche said.

Vincent Nwani, investment and business consultant, explained that early in the year, one of the top brewers projected an output of 4 million liters in the first quarter of 2020 but was only able to achieve 600,000 liters in volume, which is a direct consequence of the pandemic and the lockdown. He further said that consumers’ lifestyle was impacted especially as social activities were on hold, thereby hurting demand and sales volume. He predicted that the situation would linger on into the year.

“Despite easing the lockdown and the gradual resumption of activities, people’s lifestyle and habit have changed. You find out that many people are trying to keep fit and healthy and as a result stay away from alcohol. Consequentially, demand for their product will not be as much as expected as people try to stay safe,” Nwani said.

On his part, Akinloye Ayorinde, consumer goods analyst at CSL research, said the poor financials were driven by the decline in demand caused by the closure of clubs as well as the restriction on social gatherings. He said despite the excitement of the reopening of bars and clubs, brewers may still face problems as people may not be comfortable sitting in bars or be inclined to resume social activities during a pandemic.

“Going forward, sales in Q3 and Q4 may not be as bad as Q2 but will not be as good as the previous year,” Ayorinde projected.