The race for market leadership and profitability among the three ‘musketeers’ players in the Nigerian beer industry has become highly intense, with each player churning out different strategies to boost volume sales.
With the operating terrain still challenging, the three musketeers have to wait and see limited opportunities for growth in sales of lager, they are pushing premium brands shielded from higher costs, as well as their non-alcoholic drinks exempted from excise charges
Early this year, International Breweries Plc makers of Premium brand, Budweiser announced a price change in its premium brand dubbed ‘King of Beer’. It, however, announced a reversal of prices in March after the other two players namely Guinness and Nigerian Breweries refused to follow suit. The interval of price change saw significant sales dropped in Budweiser, with Nigerian Breweries’ Heineken and Diageo’s Guinness Gold being the biggest winner in the price change.
Brewers in Nigeria are confronted by a combination of slow volume growth, a flat beer-pricing environment, intense competition, higher raw material costs, and higher excise, culminating in declining cash margins.
The Nigerian economy has experienced sharp up-and downswings in recent years, reflecting large fluctuations in oil prices. Consumer price inflation spiked in 2016 and 2017, in large part reflecting a depreciating naira, whose value fell by a cumulative 45% against the US dollar between 2015 and 2017, the weaker naira led to rising import prices and higher overall inflation
Dayo Ayeni, vice president and Sub-Saharan Africa consumer analyst at Renaissance Capital said the lull performance in the premium lager segment may soon be over. According to Ayeni, the premium lager segment has witnessed an improved activity unlike years back when Nigerian Breweries’ Heineken dominated that market. Between Q2 2019 and Q2 2019, AB InBev has moved in with Budweiser which was launched on the eve of the soccer world cup held in Russia.
“The reason for that is the absence of strong price increases in their core brands mainly the mainstream brands and players are trying to drive net positive growth in gross revenue per hector meter for their brands which could help them extend margins,“ he said.
Ayeni further noted that management of IB will be stuck with Trophy and Hero drinks contributing to their bottom line. He however advised management to invest behind the brand as investors are looking for margin expansion and good returns.
“Management is now faced with the dilemma to support the brand with investment or do you step out slightly to get expansion in margins and hold back on branding and advertising,” he said.
He, however, lamented that the beer industry still looking for the catalyst as the consumers are still under pressure.
“The consumer purchasing power will improve with the much-expected minimum wage increase, the volume that these companies are reporting is still not driven materially as investors would like to see,” he said.
OLUFIKAYO OWOEYE
