As the economy goes down, drinking goes up, so says one study about the unlikely negative correlation between an economic downturn and alcohol consumption. Guinness Plc, Nigeria’s second largest brewer appears to be buttressing this point.
In the first half of this year alone, Guinness has now reported revenue of N109.1 billion topping the N106 billion reported for the full year ending June 2020 and on track to beat the N160.4 billion in revenues reported in the financial year ending June 2021. Pre-tax profits are also N12.9 billion more than doubling the full year pre-tax profits of the prior year. The good times are back again.
In its more recent second quarter results ending December 2021, Guinness reported a revenue of N61.6 billion, by far its best revenue in a single quarter. This tops the already impressive Q1 revenue of N47.4 billion by about 30%, a growth momentum not seen since 2019. The last three months of the year has always been the strongest for beer-making companies for obvious reasons.
It’s the holiday season characterized by intense partying, fun and large events. In the mix is heavy consumption of beverages and alcohol setting up companies like Guinness to gain immensely. But what exactly is Guinness getting right to justify such impressive numbers? We now understand why.
Over the last decade, Guinness has struggled with rising operating costs, volatile topline growth and challenges with its route to market strategy. The company has also struggled with pricing as value brands dominated alcohol consumption over the years. Adding port congestion issues, rising debt costs and its inability to pass through rising cost of operations to its customers, it is easy to see what it had to do to turn things around. So, what exactly has Guinness done?
Mr. Baker Magunda provides an insight into what Guinness has been doing. According to him, the revenue growth is “driven by resilient consumer demand and improved outlet coverage, as well as benefitting from headline price increases in key brands. Revenue grew across all key categories driven by our strategic focus brands, Malta Guinness and Guinness, as well as double-digit growth in local and imported spirits and the ready-to-drink category.”
This confirms two things. Firstly, the company has increased prices of its flagship brands without getting hit by sales drops. This is easier to achieve than ever before since everyone is increasing prices, consumers have no qualms dealing with a price increase from Guinness. It has also expanded its distribution game, getting its products closer to its consumers. It also supported sales of its beverages and beers with strong marketing for its spirits and ready to drink segments. The impact of these moves on its headline numbers is remarkable for the first half of the year.
Sales of Guinness Stout is up 33% up, year on year. Mainstream spirit drinks which include the likes of Orijin, Gordons, Smirnoff is up 38% YoY, while that of its premium spirits brand; Johnny Walker and Singleton is up a whopping 59%. Its Malts and RTDs are also up a staggering 149% and 80% YTD respectively. Remarkably, Guinness now makes more money from its Malt segment than its beers. For the first time, Malts delivered 36% of revenue, compared to 32% from Beer, 24% from Spirits and 8% from RTD. The fact that all segments recorded overall growth speaks volumes for the company’s future earnings potential.
Despite the impressive topline numbers, rising cost remains a challenge for Guinness. It cannot continue to increase prices, so it has to find a way to continue to push volumes faster enough to cover costs and increase margins. That will be the next chapter for Guinness. For now, investors have rewarded the company for its blistering performance with a 55% pop in its share price, making it one of the best-performing stocks this year. All it needs to do to maintain this momentum is to replicate the first half of the year in the second.
