War Of The Breweries

In the last decade, the Nigerian brewery industry has faced a remarkable surge in the levels of struggle for dominance. There is stiffer rivalry among the existing players, encroachment of new competitors, threat of substitutes as well as bargaining power of suppliers and buyers. To gain and maintain market share, the brewery giants are increasingly adopting products innovation, packaging and branding, pricing differentiations, distribution models and channels, strategic global alliances, market segmentation, adverts and sponsorship.

For instance, Guinness Nigeria Plc came up with a new brand called Smirnoff Ice. Nigerian Breweries Plc (NB) responded by adding another brand called Guilder Max to its own brands.  A new twist in the face of uncompromising competition in the dark beer market has emerged with the Nigerian Breweries’ dark stout brand, Legend Extra Stout, dislodging the Guinness Nigeria’s brands –Guinness Extra Stout and Guinness Extra Smooth to become the best stout beer in taste and quality, based on a recent quality assessment poll.

Guinness Nigeria launched its latest brand “SNAPP” on Saturday September 22, 2012. According to the Managing Director and Chief Executive Officer of the company, Mr. Seni Adetu, “SNAPP has been introduced into the ready to drink category in response to the increasing demand for an alcoholic drink that appeals to women.” This is in response to the recent findings that out of about 45 million consumers of alcoholic drinks in Nigeria, 12 million are women, hence the decision to produce SNAPP to appeal to these women who wants originality. We wait to see how Nigerian Breweries and the other competitors will react to this challenge.

Increasing Flow Of FDI Into Brewery
Over the last five years, the sector has attracted huge foreign investments through international alliances. For example, Heineken acquired 54% shares of NB and subsequently invested more than $500 million (about ₦77.5 billion) in the company. In response, Guinness Nigeria, the local unit of Diageo Plc, announced plans to spend ₦52 billion ($335.8 million) on expanding its brewing capacity in Benin and Lagos breweries. It was therefore no surprise that the Nigerian market for Guinness Stout overtook Ireland, the home country of Guinness, to become the company’s largest market after the United Kingdom.

… And The War Rages On
Realising the cash cow in the Nigerian market, both the Nigerian Breweries and Guinness Nigeria poured millions of naira into advertising, all in the aim of getting a share of the wallet of the middle class. Not content with advertising, Guinness Nigeria employed entertainment but focused largely on football to get to the middle class. The company at a point became one of the sponsors of the Nigerian Super Eagles and also sponsored some local football teams. The high point of this strategy was the friendly match it sponsored between the Super Eagles and the Argentine national football team, tagged “Guinness the Match.” This strategy proved successful as it created more brand loyalty.

Nigerian Breweries also opted for the entertainment route to get into the wallet of the middle class. The company came up with the Gulder Ultimate Search reality show and Star Quest, a talent hunt show, amongst others. It also organised concerts featuring top Nigerian artistes and foreign ones to promote its brand.

The battle for the middle class also led to the production of beer in cans as both companies started canning their premium brands. This further aided the penetration of their products and intensified the competition in the lager and the stout market as well as the malt market.

However, in a bid to carve a market segment for itself, SABMiller has shaken up the low end of the beer market with its low-priced beer.  The company has been luring those who consume home brewed drinks into taking its affordable commercially brewed beer. This has heightened the competition in that segment of the market, which was hitherto dominated by Consolidated Breweries. The presence of SABMiller has made the market more competitive because it has the ability to produce cheap beers from local materials.

It appears that both Guinness Nigeria and Nigerian Breweries are not willing to let go of the low end of the market. Guinness Nigeria recently entered that segment of the market when it launched Dubic lager beer earlier this year. In the same vein, NB through the three breweries it acquired from Heineken’s deal has also entered the market with products like Goldberg lager and Life Continental lager.

Thriving On The Back of Competition
It is not surprising that breweries in Nigeria are making a kill in the face of the downturn in the global economy, when the brewery industries in most countries around the world have taken a tumble as beer consumption has dropped.

Nigeria’s volume growth in the beer market, supported by significant annual investment in capacity (over $1.5 billion in the last three years) is rising steeply. Though second to South Africa, Nigeria is Africa’s largest fastest growing beer market; climbing six places to the 19th position in the most recent data for country rankings on consumption.

Despite the total consumption accelerating as one of the fastest rates in the world, beer per capita consumption (PCC) in Nigeria remains low at 11.8 litres, far below that of South Africa (60 litres). Nigeria’s low PCC can be attributed to a number of reasons including the size of its growing population (half of which  theoretically  do  not  consume  alcohol  for  religious  reasons)  and structural bottlenecks that prevent the production and distribution of beer (particularly in the rural areas).

Recent figures from the Nigerian Bureau of Statistics (NBS) show that 61% of Nigerians live on less than $1 a day, putting mainstream beers, which retails between $1 and $3 out of reach of regular consumption for this segment of the population. Nigeria’s youthful population in which 39% of the population are below the drinking age of 18 also contributes to the country’s low PCC.

Recently released consumer survey by the NBS captures the portion of food item expenditure spent on alcoholic drinks. It showed the expenditure pattern on alcoholic drinks between rural and urban areas across the different geographical regions. Although data on the size of Nigeria’s informal alcohol sector remains elusive.

The industry still imports about 25%-35% of its raw materials input despite local content campaign. The sector is estimated to have a potential production capacity of 24mhl in 2015. If the needed $1.51 billion is invested in capital expenditure (CAPEX) before 2015, the sector may record year-on-year production capacity of 40mhl.

There has been some activity on the parts of other global brewers in the Nigerian market in terms of capacity expansions, growing visibility of previously quiet brands and the realignment of strategies; the impact of which are slow but steady.

Fundamental Drivers Of The Brewery Industry
Large and Growing Population: According to Nigeria’s Population Commission, Nigeria is the  most  populous  nation  in  Africa  with  over  150  million  people  and  a population growth rate of 3.2% per annum. Even if the segment of the population with religious aversion to alcohol (about 50%), was discounted, Nigeria would still have a population equal to the second most populous nation in Africa, Egypt, with about 84 million people; thus, Africa’s potentially largest beer market. Nigeria’s population dynamics are even more scintillating when we consider the rural–urban split and age demography of her population.

The rural–urban split is estimated at 50/50 with an urbanisation rate of 3.8% per annum. When we consider Nigeria’s brewery market, with a heavy tilt towards the mainstream and premium segment, the potential for the beer market is huge. At an urbanisation rate of 3.8% or approximately 3 million people per annum, the brewery market’s growth potential is reasonably assured. Furthermore, rural dwellers, known to consume mostly homebrews (Sapele Water, Brukutu and Palm Wine), offer tremendous growth potential for the relatively infantile economy beer segment, as it presents a natural transition to packaged commercial alcoholic drinks for lower income rural dwellers.

A yet unexplored segment in Nigeria’s beer market is the female population. Though they constitute above 50% of the population, female consumption of beer, as in most African countries is still low. Presently, beer marketing is not targeted at female consumers even though drivers  of alcohol consumption such as westernisation  and  urbanisation  are  also  valid  for  the  female  population.

Rising Per Capita GDP: Several studies have shown that beer consumption rises with income per capita, which is why Nigeria’s rising per capita is positive for the brewery industry. In line with Gross Domestic Product (GDP) growth, Nigeria’s GDP per capita has been rising and accelerated since the return to democratic rule in 1999. The country’s GDP per capita averaged of 0.1% between 1990 and 1999, with a jump to 13% between 1999 and 2011. It is from this base that the International Monetary Fund (IMF) estimated a per capita GDP growth of 5.3% over the next 5 years with GDP per capita expected to hit $2,000 by 2016.

Distribution  Network
Apart from being  capital  intensive, the brewery sector also  happens  to  be  time demanding  to  develop  a  distribution  network  and  consumer  base.  The market is dominated by established exclusive distributors and the Nigerian beer consumer tends to be brand loyal.

It is believed that beer will continue to dominate the Nigerian alcoholic beverage market in the near future for a number of reasons. First, wine and spirits are significantly more expensive than beer. It is obviously the more accessible alcoholic beverage in an economy where over 60% of the population live on less than $1 per day. Since homebrews still account for a significant portion of alcohol consumption, beer is in a better position to capture this segment of the market as they transit to the consumption of formal and branded alcoholic beverages. Beer is produced domestically with mostly local inputs while wine and spirits, which are mostly imported, remain subject to import duties and stand at a disadvantage to beer in terms of distribution and pricing.

Emerging Investment Opportunities
In spite of the notable growth being recorded in the brewery industry amidst significant acquisitions and expansions, opportunities still abound for current players and potential players seeking exposure to Africa’s second largest beer market. The country has a huge and growing population of over 160 million people, the largest in Africa. Yet, beer consumption in Nigeria is still relatively low in comparison to the world average. The world average beer per capita consumption is about 27 litres while Nigeria’s beer per capita consumption is about at 10 litres. South Africa with a population of about 50 million people has a beer PCC of about 63 litres. There is still room for lots of growth since beer consumption per capita is very low.

There are a number of dormant breweries and fringe players for acquisition. They require the technical expertise to be operationally revamped. While intensive due diligence is necessary especially for those brewers that have regional presence and advantages, what is obvious is that there are handful fringe players that need the competitive edge to withstand the industry dynamics and climb along the industry growth path.