In Nigeria, where weak macro and contracting disposable incomes are pushing consumers into the value segment of alcoholic beverages, the competition is intensifying, as major beer makers seek to expand their footprint to avoid losing ground.
Nigerian Breweries (NB) the biggest beer-maker in the market, is said to be planning a new plant in Benin, while Anheuser-Busch InBev NV, AB Inbev, in a move to increase its foothold in Nigeria, plans to establish a $400m mega plant in Shagamu, Ogun State, according to people familiar with the matter.
The investment is part of strategy to consolidate on its merger with SAB Miller and challenge Nigerian Breweries and Guinness Nigeria, both of whom currently control the beer market.
“We think International Breweries is best positioned to grow volumes (off a low base) given its value-focused portfolio. Over the medium to long term, should the macroeconomic environment improve, we think Nigerian Breweries (NB) will be best positioned because of its dominant market share and extensive portfolio of leading brands,” Seki Mutukwa, a Renaissance Capital analyst said in a recent note on the sector.
Meanwhile, Guinness Nigeria Plc, the other major player in the market, is also looking to deepen competition in the sector, following its strategy to build a total beverage portfolio, and the recent completion of its £12 million mainstream spirits plant in Benin.
With the new plant, Guinness Nigeria is expected to now produce mainstream spirits locally, at an affordable price point.
The firm, which is majority-owned by London-based Diageo Plc, has launched Smirnoff X1, Gordon’s Moringa Citrus Blend and United Spirits Limited (USL) brands – McDowell’s No.1 Whiskey and McDowell’s VSOP in the marketplace.
Analysts say Guinness is gradually sharpening its presence in the highly fragmented spirits segment which has the potential to lift revenue in the medium term.
The spirits segment contributed 14 percent to the firms H1’17 turnover, with Euromonitor forecasting a 5-year volume CAGR of 7 percent in Nigeria’s spirit market.
Nigeria is the second largest beer market in Africa and consumes some 16 million hectolitres of beer a year, about half as much as in South Africa, the continent’s biggest beer market.
The country’s per capita beer consumption is about 10 litres a year, compared to a global average of 35-40 litres, according to Morgan Stanley.
Nigeria’s population of 180 million is growing at 2.70 percent per annum and will be the third largest by 2050, with over half of the population between the ages of 24-35, according to the World Bank.
The beer market is estimated to be worth about N837 billion or $2.7 billion, as at the end of last year, according to Euromonitor Research, an international marketing research group.
SAB Miller made inroads into the Nigerian market in 2009 when it acquired Port Harcourt-based Pabod Breweries, makers of Grand lager beer, and Ilesa-based International Breweries, makers of Trophy lager.
In 2012, SABMiller established a $100 million brewery in Onitsha, which makes the Hero lager brand.
AB InBev acquired SABMiller last year.
AB InBev’s African CEO, Ricardo Tadeu, said recently that “SAB Miller’s Trophy and Hero beers are doing great in the market and are favourably competing with Nigerian Breweries’ Goldberg and Life brands.”
Tadeu said the company also plans to introduce Stella Artois and Budweiser, two of some of its largest and high performing beer brands, into Nigeria.
Meanwhile, Nigerian beer makers are recovering after a tough year of operations in 2015/2016.
Nigerian Breweries said for the first six months through June 2017, its net income spiked by 24.60 percent, to N23.75 billion, from N19.06 billion the previous year.
Sales, which supported margins, was up 15.02 percent to N181.07 billion.
“Similar to most consumer goods firms, we believe NB’s results were driven more by pricing, rather than volume growth. We note that NB implemented price increases of around 12% in the latter half of the prior year, which is almost in line with the 12.4% y/y increase on the top line,” said Tude Abidoye, an equity research analyst with FBN Quest Limited.
Guinness Nigeria Plc, the country’s second largest brewer, returned to the path of profitability for the full year period ended June 2017, despite increased costs and spiralling interest expense on obligations.
Guinness posted a net income of N1.92 billion for the period from a N2.01 billion loss position the previous year.
The company’s audited financial statement for the period showed sales spiked by 23.47 percent to N125.91 billion as the Nigerian brewer embarked on aggressive expansion and re-banding of key products with a view to bolstering top lines.
Guinness is in the process of raising N38.7 billion in equity capital, through a rights issue to help deleverage its balance sheet, given its relatively high debt level (Debt/Equity ratio of 1.3 vs. Nigerian Breweries of 0.1), finance its working capital needs and expand operations.
Nigerian Breweries shares are up 23 percent this year, while Guinness shares have rallied by 11 percent but both have underperformed the benchmark index’s 32.5 percent gain this year.
PATRICK ATUANYA & BALA AUGIE
