We have moved from 53% local sourcing to 80% in 2 years— Guinness MD
Baker Magunda is the managing director of Guinness Nigeria plc. He has worked in several markets in Africa and beyond. In this interview with Odinaka Anudu, he spoke on the company’s performance in the first half of 2020 (Note that Guinness financial year starts in July), the beverage industry in Nigeria and what should be done to lift the sub-sector.
You recently released your 2020 first half (H1 2020) financial results. Tell me, what stands out in the financial performance?
The team at Guinness and I are proud of the results we delivered for the first six months. I am happy about that and could not have asked for more from my team. I am excited about some of the things we have been doing together. The first half confirmed to us that the strategy we have chosen to run is the right one, and that it’s beginning to come through in the numbers. We have chosen a Total Beverage Alcohol (TBA) approach, which gives us an opportunity to serve more consumers and offer the widest choice to them. Total Beverage Alcohol means we are the only company in the industry with a portfolio of brands catering to all, with non-alcoholic beverages, spirits, lager & beers. So, this gives us an edge.
When you look at the growth profile we delivered for H1, strong top-line growth, volumes especially in quarter two, you will notice the improvement in areas where we want to grow. Scotch Whisky is back to growth after a difficult period. Our Ready-to-Drink (RTD)portfolio is really growing and we are currently the leaders in the RTD segment. We made huge investments into spirits three years ago, and it is also growing very strongly. Our spirits grew by double-digit in the half-year. Our innovation brands, especially the high-end brands like Singleton, Johnnie Walker Gold and Johnnie Walker 18 are all growing very strongly. So, from the point of execution of strategy in terms of innovation and spirits, I think that the second pillar was delivered very well.
We have had six months of furthering our objective to prevent drink driving, galvanising the industry and amplifying the voice of ‘don’t drink and drive.’ A lot of work was done in terms of underage drinking in schools with our colleagues in the industry as well. Through the Beer Sectoral Group, we came together— the three leading voices in the industry— to speak with a single voice and let people know what we do not accept as an industry, even though we are competitors. We put up what I think was a very important campaign—all of us saying the same thing and speaking with one voice.
Also within the space of communities, we had a very good day in Abuja where we recommitted to our partners the work we had been doing with small-scale farmers. All we were saying to the partners is, “We have been in this for some time; we will continue to be here; and we want to share the success we have achieved with you.”
We have put together programmes that distinguish us, setting us apart in the industry and more generally as a private sector employer. We are the first company to launch six months fully-paid maternity leave for females and four weeks fully-paid paternity leave for males. This is for all legal ways you choose to have your babies, not just biological. People have asked us, “How do you fund this?” Our response is that it is not just about money, this is about enabling our employees to be the best they can at home and at work. Our goal is to be an equal opportunity employer, and this is a bold decision which looks to the future.
We are beginning to see an acceleration of female hires and internal promotions. This is showing up in the increasing number of women at all levels in the organisation.
We are beginning to export talent too. In the last six months, we had people move from here to the UK, US, Europe and our African sister companies within the Diageo Group. We hope that they not only come back with positive sense of development but improved as stronger leaders. It is our stated objective that Nigerians are at the helm of this business. Presently, we have only three non-Nigerians out of eight in our leadership. We are only 11 non-Nigerians out of a workforce of 826 full-time employees and 3000 contract employees. We want to make sure that we develop the talents we have to take on the roles as we evolve.
Our code of business conduct is our North Star in a difficult environment like Nigeria. We always want to ensure that we are doing things the right way. We are an active member of the Nigerian Stock Exchange (NSE).
Performance is beyond the numbers. It is about the dedicated people working here, the community in which we work, the shareholders who we serve, and maintaining a long-term view of how we want to shift our business.
We are working in a sector that is under pressure now. Despite the muted growth in the industry, we delivered a strong volume growth. We saw an improvement in cost control and our cost of goods was good. In a country where inflation is 12 percent, we grew the cost of sales by only two percent.
The big challenge is about cash. Many of our distributors are small to medium enterprises. Unfortunately, access to cash from the banks has been too difficult for them. The cash squeeze permeated through the industry and has led many FMCGs, not just alcohol, into fairly high trade debts.
Going through those challenges, however, has not diminished the faith we have in Nigeria. The management and the board remain committed to continuing investing in Nigeria. We have been there for many decades and we are unfazed by things that are going on now. We have a committed team and we believe better times will return.
What steps have you taken to mitigate economic and operational challenges in the country?
What we do is innovate. You have to innovate because in an economy like ours, there will always be people wanting to buy luxury. We innovate at the high end of the market because the premium category is growing. There is significant margin decline in mainstream brands. The second thing is investing locally to mitigate import challenges. We used to import some of the brands two or three years ago, but we now produce them locally. This backward integration has created jobs and you can hit the margins because you do not have to face the daunting challenges at the ports. We will continue to substitute imports with local production. We have moved quickly from 53 percent local sourcing two years ago to about 80 percent of total production.
Next is embedding everyday efficiency in all parts of the business. We are looking at every cost and how to drive it down. This is now waded into the DNA of our organisation. Everybody looks at every cost to make sure that they do not spend money that we do not have to or look at a better way of doing that. We have looked at new technologies of brewing and converting at low costs. The final thing we have been trying to do is to make everyone love working at Guinness Nigeria. Everybody thinks, ‘If this were my business.’
On utilities, which are the final big cost area, we make sure to find the best value energy. We have been working with the power distribution company to make sure we have cleaner energy. Therefore, we have been looking at everything in terms of cost as we remain prudent in the troubled economy. At Guinness Nigeria, we do not travel in business class; we all travel in the economy class.
What is the position of Guinness on the closure of Nigeria-Benin border by the federal government?
The position of Guinness is that the government may have to reconsider the border closure in the interest of some other economic considerations and implications of the closure. I think the government has to speak with the member countries in the West African region on the existing issues and challenges in order to open the borders.
The Nigeria Bureau of Statistics confirmed that the consumer price index has gone up since the border was closed. It is not good for Nigeria and it cannot be good for Nigerians. The second thing is that inflation accelerated. Another point is that when you walk around stalls in the informal sector, you see many empty market stalls. They no longer have the kind of sales they used to have. I do believe that Africa is stronger when we trade with each other and the informal sector should be helped to formalise in order to move goods across the borders. I do not think it is something we cannot resolve at government level.
Is the African Continental Free Trade Area (AfCTA) a good idea? Again, is Guinness ready for it?
Nigeria took some time to decide if it was a good idea to join the AfCFTA. Nevertheless, the government has decided that it’s a good idea for Nigeria, and I think we should now follow through to operationalise the agreement. However, regarding our readiness as a business, we are ready and have been exporting for a long time. Challenges still exist at Apapa ports, and if we do not improve this, we will not be able to supply and compete.
In addition, adequate infrastructure is critical to export. The infrastructure problems need to be dealt with to make us competitive. The help we need from government is to speed up incentives for exporters. We currently have the Export Expansion Grant (EEG) through which exporters can get some grants. However, when it takes seven to 10 years to get the credits, it defeats the purpose for which it was put in place.
How will you assess the policies of the Central Bank of Nigeria (CBN)?
We believe that the policy direction of the Central Bank is going the right way and we support it. The governor is saying, “Lend more money to the sectors where there are real economic activities and where there is value to be created.” The real economy is in the informal and small-scale sector— the man converting hides and skins into shoes or cotton into fabrics. That is where the money should be lent. When those people cannot access money, it becomes a problem. We like the policy direction of the CBN and we are waiting to see how that comes through the commercial banks.
What is your perspective on Nigeria’s lending rates?
We are excited about the direction of the CBN, and we believe if that translates into lower interest rates and better access to credit, the whole thing will be better for all.
What is your outlook for your spirit business?
Our strategy is to grow spirits faster than beer. We would like the spirits part of our business to grow to 25 to 30 percent; and we are seeing the shift we want. We will be producing more spirits here. Like I said earlier, it allows us access to better price points, brings better quality for Nigerian consumers and gives us an opportunity to produce locally and create more jobs, import less and avoid some of the challenges at the ports.
Can you speak on Guinness’ Integration Programme with 30,000 smallholder farmers?
Yes, we have a team that works with a wide range of partners to provide technical services, farming knowledge, financing, insurance, processing and harvesting to enable over 30,000 small-scale farmers move from basic to more efficient and productive yields. The team helps them to get high-yielding seeds and to have confidence in financial matters so that when they get money, they can make better choices. In our view, it is a contribution that is beyond buying seedlings. We assure them of the market for their produce. As you are aware, African farmers have issues with a reliable market. Therefore, being able to assure them of the market gives them confidence.
What is your message to Guinness’ consumers and shareholders?
My message to the consumers is that Guinness Nigeria remains committed to innovating to invent brands that will excite them. In doing that, we appreciate their support over the last 70 years and we do not take that for granted. We have more innovations lined up building on the last six months when we launched Gordons gin, Guinness Gold, Guinness Smooth and Baileys Delight. We will remain focused on responsible consumption and be the voice that leads calls for moderation in this country. We will continue to support our communities as we know that we only thrive when those around us do, and finally we will encourage and support the efforts of the government to improve the ease of doing business in Nigeria.