The Nigerian beer market is showing signs of a slow-down, according to recent results from the country’s major brewers. Anecdotal evidence suggests that the reason for this is that drinkers are having their purchasing power fizzle out.
Nigerian Breweries’ 2015 first quarter revenue rose by just 1.3 percent Y-o-Y to N69.92 billion. On the other hand, while Guinness recorded a third quarter (Jan to March) revenue of N29.4 billion (a 2 percent drop from N30 billion recorded in October to December 2014), its 9-month revenue to March 2015 was up 9 percent on impressive performance of its new Orijin brand.
“2014 was another year of relatively slow growth in the malta, stout and lager market”, said Nigerian Breweries Managing director and CEO, Nicolaas Vervelde, in a presentation of the company’s latest results, made to journalists last week. “And by slow growth, I mean low single digits”.
This compares poorly to the average growth the market showed between 2001 and 2010, when the average growth was around 8 percent to 9 percent. The last 3 years (2011 – 2014) have been nowhere close to 8 or 9 percent. It was all between 1 percent and 2 percent.
“The slow down in 2014 growth was driven by inequalities in income distribution, and little purchasing power”, Vervelde said.
“Three years of consistently minuscule growth definitely points to a saturation in the industry”, said an industry watcher in a response to questions.
Another thing that played out in the beer market in 2014 was increased consumer choice and heightened competitiveness between the players in the sector. The lager market alone now has 18 active lager brands, compared to 6 lager brands a few years back. This has enormously enlarged the choice that is available to the consumers.
The increase in competitiveness among the major brewers, and the proliferation of brands has forced players into a quest to capture more market share and ramp up volume growth. With organic growth slowing, more inorganic growth options from mergers and acquisition have become very feasible and plausible.
Nigerian Breweries, with the acquisition of Consolidated Breweries, was able to further increase its market share in the lower-price segment. It also has a ‘management contract’ with South-south based Champion breweries. Although Nigerian Breweries isn’t aggressively seeking inorganic growth, it will “as in the past, look out for opportunities that present itself”, its CEO says.
Beer affordability in low-income countries such as Nigeria will be key for additional revenue growth, since brewers now face a slowing growth in consumers’ spending power.
More than ever before, brewers’ latest numbers showed that the impact of falling consumer disposable income is becoming more real. The industry has seen significant consumer ‘down-trading’, as pricier brands lost market share to the cheaper brands.
Down-trading is a consumer behaviour where cheaper products are used to replace more expensive products or spending habits.
“There is the tendency for consumers to buy brands that are priced below the N200 mark than those that are priced above N200”, Nigerian Breweries CEO said.
The value of sales has been affected considerably, as a result of the down trading, since there is now an emphasis on lower priced goods by the consumers.
With the psychological N200 price ceiling for beers (set by consumers), cost leadership will be the market-beater’s strategy going forward.
Cost leadership will include having sustainable and consistent local supply of raw materials, including cassava, sorghum and packaging materials like aluminium cans.
With an inflation environment of 8.5 percent, this will mean that without doing anything, brewers costs will be raised by 8.5 percent.
According to the market leader, Nigerian Breweries, a 100-percent local sourcing of packaging materials, helped it mitigate the impact of currency risk. Also, with its imports denominated in Euros, rather than in Dollars, currency volatility was also not as bad. The firm aims to increase local component of its raw materials to 60 percent by 2018 (using locally sourced cassava and sorghum).
Edozie Ifebi
