For the first time in decades, shareholders in Nigerian Breweries and Guinness Plc, which together have dominated the country’s beer market will have to worry about their continued dominance of the drink business in the country.
Heightened competition from rival beer manufacturers, as well as declining spending power of Nigerians, which have forced many of them to seek lower priced drinks to quench their thirst, have begun to eat away market share from the two biggest players in the market.
Nigerian Breweries on October 26 released its third quarter (Q3) 2018 financial report for the nine-month period ending September 2018. The results show that sales are down 11 percent. But the surprise was the first quarterly loss in a decade by the company, as Nigerian Breweries plunged into a pre-tax quarterly loss of N5.1 billion.
“The results reflect a high single-digit unit volume decline arising from increased competition, particularly from International Breweries, the local subsidiary of AB Inbev. An increase in taxes, following a change in the excise duty regime to specific from ad valorem also contributed to the year on year decline in net sales” analysts at FBNQuest stated in a note to clients.
A rise in excise duty expense by 31 percent and also marketing and distribution expenses which rose five percent, were not enough to compensate for the drop in cost of sales and admin expenses resulting in a N3.87 billion loss from operating activities in the third quarter.
Even though the company recorded a N3.65 billion loss for the quarter, Nigerian Breweries’ profit for the first nine months of 2018 remain positive at N14.8 billion. However, this is 62 percent lower than the N24 billion profit made in the same period of 2017. Based on the third quarter results, analysts project that Nigerian Breweries will underperform their projections for full year 2018.
“Following the results, we expect to see a marked sell-off on the shares and downward revisions to consensus estimates” FBNQuest stated in their notes to clients.
However, Uaboi Agbebaku, the Company Secretary and Legal Adviser to Nigerian Breweries Plc, blamed the company’s performance on “the new excise duty regime which came into effect in June and the consequent effect of it, which adversely impacted the Third Quarter results”. Agbebaku added that the company also undertook a rightsizing exercise which resulted in a substantial one-off cost during the quarter.” Nigerian Breweries reportedly laid off about 200 of their staff, another sign of the new realities in the country’s increasingly competitive beer market.
The country’s other beer giant, Guinness Nigeria Plc also released its result for the first quarter of its 2019 financial year on October 26 also showing that it is losing ground to cheaper brands, as weakening spending power forces Nigerian beer consumers to opt for lower priced brands.
“Sales declined by -6% year on year to N28.1 billion. Profit before tax (PBT) surprised negatively (by c. -50%) relative to our forecast. PBT also tracks well behind consensus 2018 estimated forecast of N12.5 billion. In addition to the slow-down in unit volume growth arising from the squeeze in household wallets, increased competition, price discounting and an increase in the excise duty regime are some of the headwinds exerting pressure on sales and earnings” analysts at FBNQuest observed in their notes to clients.
The demand is weak and competition is high and when this occurs, everybody is struggling for market share. International Breweries is gradually-through market penetrating products- taking market share away from Nigerian Breweries, according to Christian Orajekwe, equity research analyst at Cordros Capital.
“Companies are operating in a high inflation environment. With the dollar stable, importers are back to the market, causing a supply glut. More worrisome is the influx of cheap and substandard goods through our porous borders, which further exacerbate the anaemic position of major players in the industry,” said Christian Orajekwe, equity research analyst at Cordros Capital.
The Nigeria beer market wars heated up in April, when Anheuser-Busch InBev (AB InBev), the world’s largest beer maker launched its premium brand, Budweiser into the market to compete in the premium segment with already established premium brands like Heineken and Guinness Stout.
Even though Renaissance Capital’s consumer goods and retail analyst Adedayo Ayeni had seen the entrance of AB InBev as a major threat to the dominance of especially Nigerian Breweries in the market, the management of Nigerian Breweries had expressed optimism that they would be able to withstand the competition.
Jordi Borrut Bel, CEO of Nigeria Breweries (NB) said the company is used to competition as Nigeria has always been a very competitive market in the past with NB facing two strong competitors like Diageo and SAB and AB Inbev stepping into the market through SAB adds to that competitiveness.
“In 2018 we expect the operating environment to remain challenging, although we remain confident that we have the right strategy, people, operations and brands to keep delivering value for our stakeholders and we are well placed to capture value when the economy recovers,” Borrut Bel said during the company’s conference call in April monitored by BusinessDay.
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.
Nigerian Breweries and Guinness have largely dominated the market until the recent expansion push by SAB Miller, which first came into Nigeria 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. Hero and Trophy are low priced beer brands.
AB InBev, the world’s largest brewer, acquired SABMiller, South Africa’s largest brewer, in 2016 and is using its financial muscle to push the company’s brands in the Nigerian market.
In April, the company launched a newly-completed $250 million 2.0mn hectolitres greenfield beer factory in Sagamu, Ogun State, with plan to consolidate its assets and list the three subsidiary firms (International Breweries, SAB Miller, Pabod) as one entity on the Nigerian Stock Exchange (NSE).
Speaking at the launch of the plant, head of Ab Inbev’s Africa operations, Ricardo Tadeu, said that a new plant became necessary in order to address supply constraints that had limited sales of the company’s products to areas close to existing plants.
Tadeu noted that 70 percent of the company’s raw materials such as cassava, millet and sorghum, as well as packaging materials are sourced locally.
A report published in December 2017 by BusinessDay Research and Intelligence Unit (BRIU) titled “The Nigeria Brewery Industry Snapshot”, noted that the industry has revealed a somewhat zero-sum scenario in the last five years.
According to BRIU analysis, NB shed three percentage points as its market share declined from 71.5 per cent in 2016 to 68.5 per cent in 2017, suggesting a waning position as the undisputed industry leader.
Guinness Nigeria’s market share was 25 per cent in 2017 compared to 23.2 per cent in 2016, while that of AB InBev’s International Brewery stood at 6.5 per cent, up 1.2 percentage points increase relative to 2016.
BALA AUGIE
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