The market control battle among brewers thickens.
The Nigerian beer industry has recorded a decline in growth as at third quarter 2013, research has shown, with high cost of living and heightened security concerns highlighted as major factors.
Recent research reveals that, overall, the Nigerian beer market has witnessed a decline of about 10 per cent in 2013 on the back of two key factors: increased pressure on flexible income resulting from high cost of living, and heightened security concerns in certain part of the country which has added pressure on distribution and cost of commodities thereby restricting beer consumption to safe locations, among other factors.
Financial Derivatives Company, a diversified financial institution, said the nation’s beer market has seen a decline in the super-premium and mainstream brands to the benefit of value / growth brands (8.3 per cent growth in 2013) typically characterized by relatively lower prices. Such brands include Trophy lager, Hero beer, Goldberg, Life beer and Dubic beer.
The attractiveness or otherwise of an industry depends on varying factors ranging from favourable returns on investment to the interaction of the components of the industry structure. Despite the challenges highlighted, analysts say Nigeria’s beer industry is attractive and the outlook is bright.
“From our analysis, we conclude that the industry is attractive. We note that though the barriers to entry are high, the bargaining power of suppliers is moderate, while the bargaining power of buyers is low. There is little threat of substitutes for the products produced in the industry and favourable complements for the products,” FDC said.
Nigeria’s beer industry is a very vital component of Nigeria‘s non-oil sector, which has largely contributed to economic growth in recent times, experts say. The industry is also pivotal to the manufacturing sector of Nigeria.
Reports reveal beer consumption in Nigeria has been experiencing growth of 9 per cent annually over the last 10 years. This growth was as a result of foreign investments in new production plants, rising disposable income, and changing consumption patterns.
Nigeria‘s favourable demographics, with a populous and vibrant youth and growing middle class are also contributing growth factors. Analysts estimate an installed capacity deficit of 53m hectoliters (hl) to serve this market with huge potentials.
Nigeria has moved from a duopoly beer industry, to an oligopoly one. Heineken has a 71% share, through its two subsidiaries, Nigerian Breweries Plc (NB Plc) with 61% market share and Consolidated Breweries with a 10% market share. Diageo has a 27% market share through its stake in Guinness Nigeria. South African Breweries Miller (SABM) is a more recent entrant to the market and has a growing but very significant stake in the industry.
NB Plc has the largest capacity and coverage, with about eight breweries located across the country, (estimated to have total annual capacity of 13.5mn hl). Guinness operates four breweries (total annual of 7.5mn hl by 2014 due to on-going capacity expansion). SABM has built up its capacity (by acquisition) to approximately 1.8mn hl, which includes Pabod Breweries in Port Harcourt, International Breweries in Ilesa and Onitsha.
The recent entrance of SABM into the Nigerian market through the acquisition of two regional brewing companies, has also given rise to speculation regarding the future dominance of the two incumbent majors (NB Plc & Guinness Nigeria Plc).
SABMiller has grown from a regional player into the world’s second largest brewer by volumes in the space of 15 years. Its decentralised approach, with the belief that beer is a local business (where local brands resonate strongly with consumers) has been instrumental in the growth of the business, according to Renaissance Capital, an investment bank.
“Building local brand champions, achieving scale through efficient distribution and marketing, and working with stakeholders such as governments have been key tenets of its business model,” the firm said.
Profitability and Outlook
From the perspective of industry players, the profitability of the industry is a mixed account, analysts say. Major players would agree to the attractiveness of the industry in terms of profitability, especially in reference to the impressive growth and economies of scale. However, fringe players struggling under the weight of heavy capital investment, according to FDC, will likely be reappraising their market entry decisions.
Analysts say the barriers to entry within the Nigerian beer industry are high as it is a capital intensive industry.
“There is a stronghold on the distribution networks by the industry incumbents and they enjoy high brand equity. These are the major barriers that new entrants would have to surmount. Substitutes such as the locally brewed gin (on the low end), wines and spirits (on the high end) do not pose a threat to the industry for the following reasons: beer consumption in Nigeria increases with a growth in social activity; and the middle class, major consumers of beer, is growing” FDC said.
The firm however said the positive industry structure cannot be fully leveraged if brewers do not carefully understand and manage their value drivers and cost drivers. Any player that intends to enter into the Nigerian beer industry should have resources and capabilities that will enable it achieve high cost efficiency while increasing consumers’ willingness to pay.
“In light of the industry‘s performance and strong growth prospect, the outlook is bright” FDC said, adding that the beer industry is definitely paying off for investors in the two major companies. “However, the entrant of SABMiller into the industry has the potential to change the dynamics, as competition is about to take a new dimension,” it added.
The future drivers of success in the beer industry are innovation and scale, according to RenCap.
“We believe that to win in beer, achieving scale is of utmost importance. Consumers need to be attracted to beer as the competition for share of throat is intense,” RenCap said.
Support PREMIUM TIMES' journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
TEXT AD: Call Willie - +2348098788999