The trials and triumphs of Nigerian beer makers

OLUWASEGUN OLAKOYENKAN & OLUFIKAYO OWOEYE

For makers of beer in the country, the battle for market leadership is very stiff. The harsh economic environment has seen profit margin reduced drastically. The low purchasing power of consumers means beer makers cannot increase the price to cover increasing operating cost, epileptic power supply, and the notoriously bad road network, most especially the Apapa gridlock which is the road leading to the nation’s busiest port. These, coupled with the new excise duty recently introduced by the federal government have hampered the profitability of the major players in the country and impacted negatively on their earnings. Despite these challenges, makers of beer are still making entry into Africa’s largest market, Nigeria – with an average age of 21 years.according to a report by a market research group, Global Data,africa is the fastest growing region for beer consumption. Nigeria, however, leads the pack of 10 biggest beer drinking countries on the continent. Beer brands make up just 16 percent of alcohol consumption in the country, while other drinks (spirits and locally brewed drinks) make up 84 percent. An analysis of the financial performance of the three major brewers since 2014 shows that while the firms were growing revenues steadily, profits were being chopped off by high costs of operations, indicating tight operating environment for the beer makers. Nigerian Breweries Plc grew revenue from N266 billion in 2014 to N345 billion in 2017. Based on its first-quarter results, this may likely drop slightly to N340 billion in the 2018 financial year. However, the company’s profit after tax is falling at a blistering rate, despite a 16 percent surge in 2017 to N33 billion. Nigerian Breweries Plc risks a significant drop in profits for 2018 to N19.72 billion as its results for the nine months ended September 2018 saw profit down 38 percent to settle at N14.79 billion. Based on the unaudited financial statements for the nine-month ended September 2018 released by International Breweries Plc which saw the brewer recording a loss after tax of N7.14 billion, the beer manufacturer would most likely record a huge loss in 2018. Increasing administration charges, marketing and promotion expenses, and finance costs all combined to weigh on the company’s profits. Meanwhile, Guinness Nigeria Plc kept an undulating revenue profile in the last five years, but recent data show profits are yet to return to their full gear after a loss of N2.12 billion recorded in 2016, even as the firm currently struggles to post a post-tax profit of N3 billion in a year. In Nigeria, the race for the biggest beer market share in the country was once a twohorse race between Heineken N.V., owners of Nigerian Breweries Plc and Diageo, owners of Guinness Nigeria. Interestingly, the narrative changed in 2011 when there was a disruption in the beer market with the arrival of Sabmiller, then, the world’s second-largest brewer, into the country, and its acquisition of majority shares in International Breweries Plc, makers of Trophy Beer, located in Ilesa, Osun-state. However, in 2017,AB Inbev the world’s largest brewer acquired 72.17% of SABMILLer’s shares in International Breweries Plc, in a series of transactions which resulted in AB Inbev acquiring controlling interests in the company. To further extend its market presence, a merger arrangement was consummated with International Breweries Plc and two other local brewers: Intafact Beverages Limited, makers of Hero beer which is popular in the South-eastern part of Nigeria, located in Onitsha Anambra State, and Pabod Breweries Limited, makers of Grand Lager, located in PortHarcourt. All these Plants are now controlled by AB Inbev. In anticipation of the arrival of AB Inbev into the country, Nigerian Breweries Plc also acquired some regional breweries across the country. The company recently introduced the Tiger Beer brand into the Nigerian market.the company acquired a controlling interest in Sona Group in January 2011 and also merged with Consolidated Breweries Plc, thereby adding its three breweries in Ijebu-ode, Awo-omama, and Makurdi to the Nigerian Breweries. How the brands are playing out in the market space Nigerian Breweries owns two key brands in the premium lager segment Heineken and Tiger which are facing tough competition from International Brewery’s recently-launched global brand, Budweiser, while Guinness Nigeria has Harp in this segment. Diageo’s Guinness Nigeria Plc recently acquired the rights to distribute Mcdowell’s, a mainstream spirits brand of United Spirits Limited in Nigeria, Gordon’s Dry Gin, Smirnoff, Red Label, Walkie Walker. It seems Guinness is the leader in the spirit segment. It also recently introduced the Orijin brand into the Nigerian market to compete with Alomo Drinks from Kaspereko in Ghana apart from its Guinness stout and Satzenbrau.and following complaints of high sugar content, it also introduced Low sugar Origin brand into the market. International Breweries recently commissioned a $250 million plant which is strategically located in Sagamu to avoid the Lagos hassle. The new plant is to intensify competition with Nigerian Breweries and also push more volumes of Trophy and Hero Lager into Nigerian Breweries important markets in the southwest and southeast regions. In the malt segment of the market, although, Nigeria Breweries’ malt segment suffered in recent years, the brewer still leads this space with its Maltina and Amstel Malta, Maltex, Hi-malt brands. On its part, Guinness is already gaining entry into this segment with its Origin Zero brand, Malta Guinness and Dubic Malt and it has seen volume growth in this brand.