Guinness just admitted stout market is dying

Guinness Nigeria Plc seems to have given up on the premium beer market as the company has signaled intentions to concentrate more on value beers. An excerpt of the company’s prospectus reveals its much expected pivot;

“Given the economic recession in Nigeria … the company plans to deepen its participation in the value beer segment and increase beer product offerings in the lower end of the market,”

This admission by most account suggest the days of reliance on Stout, its premium brand, to drive sales are well but over. Nigerians have changed their taste and for the second largest brewer in the country, it’s a bitter ending to a once powerful brand that was loved by a different generation.

What caused the pivot ?

The tough economic conditions means people have less money to spend , and are thus switching to cheaper brands. The younger demography seems to prefer lighter beer and spirits compared to the stout or higher branded beers Guinness has traditionally focused on. The change in strategy means the company the company believes will help it to sell more volumes and return to profitability.

A foreign exchange crisis last year caused by a fall in oil prices and production volumes made it difficult for companies to get fx to buy raw materials. Guinness Nigeria was forced to take a dollar loan from Diageo its parent company. Guinness is raising a rights issue to pay back the loan.

The company faces an uphill battle

Nigerian breweries, Guinness major competitor saw the writing on the wall earlier and pivoted by developing several value brands. AB Inbev which owns majority stakes in Pabod breweries, Intafact breweries and International Breweries plans to merge the 3 companies, all of which are fringe players in the low-cost market.

The merger will create greater operating inefficiencies and possibly market expansion.  Intafact produces Hero beer in the east, International breweries produces Trophy beer which is fairly popular in the south-west.

How will Guinness handle this ?

Guinness will have to spend massively on marketing and promotion in order to gain market share. Figures from NB’s 2016 annual report show it spent made N331 billion in revenues, and spent N61 billion of that amount on marketing and distribution expenses.

Guinness on the other hand made N101 billion in its 2016 financial year, and spent N20 billion on marketing and distribution expenses.

Guinness shares closed at N69.87 in todays trading session on the Nigerian Stock Exchange (NSE), down 15.87% year to date. Nigerian Breweries shares  closed at N171.25 in today’s session up 15.72% year to date on the NSE.

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