Heightened competition, declining spending power of consumers and challenging operating environment are having their toll on the Nigerian beverage industry as big players are either losing grounds or adjusting operations.
The latest in this trend is Nigerian Bottling Company Limited (NBC), the non-alcoholic beverage manufacturing company and a member of the Coca-Cola Hellenic Group, which has just stopped production activity in its Enugu plant.
It also laid off a number of staff which has implications on income tax for the state government, indirect jobs and its effect on the commercial activity at 9th Mile Corner, Ngwo, near Enugu where the plant is located.
The business decision by the multinational company to stop production in its Enugu plant that has operated for 44 years is a concern but analysts linked it to increasing and unsustainable operational cost largely informed by competition, unfavourable operating environment and decreasing spending power of Nigerians, a situation that has forced consumers to seek alternatives.
The arrival of other players such as Big Cola and Bigi Cola has caused change in dynamics of Nigeria’s multibillion Naira carbonated soft drink market. The new entrants had one goal, to challenge the status quo. The challengers started with low price offer and high volume for consumers, two strategy points that began to pay off as Nigerians began to embrace the new brands.
When the giants, Coca Cola and Pepsi realized the business impact of the ‘small players’ marketing strategy, they responded in order to stay in competition. Pepsi created ‘Long Throat’, a bigger size and Coke created smaller product ‘Solo’. But the challengers had already gone deep with below- the-line strategy.
Recession that hit Nigeria from 2015 to 2017 was another factor that compelled Nigerians to give product volume and price serious consideration and this further encouraged the deeper penetration of the new products. An analyst said “although the recession that hit Nigeria towards the end of 2015 has been said to have abated, its impact, especially in the alteration of consumption patterns will linger for much longer and when such a serious economic challenge occurs in any economy, the most affected are lifestyle products and premium brands”
NBC is not alone on the effect of competition. Nigerian Breweries and Guinness Nigeria are also affected with entry of other giants such as International Breweries, the local subsidiary of AB Inbev. In its 3rd quarter 2018 financial report for nine-month period ending September 2018, Nigerian Breweries results showed that sales went down by 11 percent. According to a BusinessDay report, the company also plunged into a pre-tax quarterly loss of N5.1 billion.
Analysts blamed the performance decline on increased competition and increase in taxes, following a change in the excise duty regime which took effect in June last year that adversely affected the company’s operations.
Similarly, Guinness Nigeria, according to is results showed that its sales declined by -6 percent year on year to N28.1 billion within the same period.
NBC said it has instead transformed the Enugu Plant into a hub for material handling and logistics for the region.
The company explained in a statement that the decision to transform the Enugu Plant from a production facility to a logistics and distribution hub was largely informed by the desire to deliver better value to its esteemed consumers and trade partners not only in Enugu State but in the entire South-East region.
The Acting Director, Public Affairs & Communications, Ekuma Eze in the statement stated that the development was in line with the holistic strategy to reposition the company’s operation for better efficiency and accelerate the business transformation plan.
Eze said ‘’the repurposing of some NBC facilities across Nigeria, Enugu inclusive, is in line with our sustainable business strategy with the overarching goal of improving efficiency and boosting production capacity to meet the ever growing demand of our discerning consumers. While production activities have stopped at the Enugu facility, the company would continue to carry out logistics and commercial operations from the location’’
Speaking on the employees whose roles were rendered redundant by the transformation, Eze said ‘’As a result of business optimization, some roles became redundant. However, the whole process was conducted with utmost respect and consideration for our employees and engagement with the Unions. The company provided robust and generous severance packages way above statutory requirements and industry average’’.
Daniel Obi
