Brewers face tough times as Nigerian economy sways

Brewers face tough times as Nigerian economy sways

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Brewers in Nigeria are facing tough times as the Nigerian economy continues to see sluggish growth amid shrinking consumer wallets.

The industry fared poorly in terms of profits accruable in the first quarter of 2019.

A contributory factor is the decline recorded in sales caused by the shrinking consumer disposable income and economic sluggishness.

“Is it not when you feed well that you will drink beer?” Ike Ibeabuchi, a manufacturer and analyst, asked.

“People are cutting their spending and embracing the value brands,” he added.

Value brands are cheap brands such as Trophy, 33 Export, Life, More, Star Lite, Goldberg and Hero.

The more expensive premium brands are innovating ways of getting young people, including engaging in entertainment and offering free gifts and trips.

According to the Q1 financial results released by Nigerian Breweries, revenue increased marginally by 3 percent, moving to N91.3 billion from the N88.4 billion recorded in the corresponding period of 2018. Its cost of sales moved up 7 percent, from N44.9 billion to N48.2 billion in 2019 while its profit after tax dropped by 21 percent from N10.1 billion in 2018 to N8.01 billion in 2019.

The negative trend was also experienced in Guinness as the company’s revenue dropped by 4 percent to N33.6 billion in 2019, from N34.9 billion in the Q1 of 2018. Its cost of sales dropped marginally by 3 percent to N22.5 billion, having been N23.3 billion in the corresponding period of 2018. The company’s profit experienced a huge decline by 43 percent, dropping from N2.9 billion recorded in 2018 to N1.6 billion in 2019.

International breweries which joined the league of industry giants in 2017, recording a 35 percent upward movement in its revenue from N25.9 billion in 2018 to N35.09 billion in 2019. Its cost of sales moved by 43 percent, from N2.24 billion in 2018 to N3.98 billion in 2019. The brewer recorded a loss in its profits as it moved down by 78 percent to N3.98 billion in 2019, from N2.24 billion in 2018.

Analysts say insecurity in the northern part of the country is also a contributory factor as it halts supplies and raises logistics costs.

“Cost of logistics is so high,” said Olayinka Ayowole, CEO of Viyola Foods, an agro-based firm.

Crumbling infrastructure and epileptic power supply are also key issues hurting manufacturers. Apapa ports have also added to manufacturers’ woes as raw materials take time to arrive in factories and exporters like NB and Guinness experience delays at ports.

In the second quarter of 2018, the federal government announced an increase excise duty rates of N30 per litter for alcoholic beverages, tobacco and others. This further increased the already high cost of production of the companies.

Headline inflation rate in Nigeria rose marginally to 11.40 percent in May 2019, from 11.37 percent in the previous month. The Nigerian economy grew by 2.01 percent in real terms in the first quarter, compared to 2.38 per cent in the fourth quarter of 2018, according to the National Bureau of Statistics (NBS).

The World Bank overview for Nigeria says the full year of 2019 will possibly record snail-paced economic growth, stating that “economic growth is expected to hover just above 2 percent in 2019 and over the medium term. Agriculture may remain affected by conflicts and climate and weather events; and the non-oil-non-agriculture will likely continue to struggle in the face of sluggish demand and constrained private sector credit growth.”

Most states are yet to implement N30,000 minimum wage agreement reached with the labour union and poverty is escalating.

Nigeria has almost 100 million people living below the $1.90 baseline, which is an extreme poverty line.

Last year, the brewer commissioned its $250million Gateway plant at Bara village along Abeokuta-Sagamu interchange.

It was the fourth brewery plant owned by the firm, with existing three breweries in Onitsha, Ilesha and Port Harcourt.

Analysts say Nigerian consumers may be resorting to cheap/ value brands.

 

Odinaka Anudu & Gbemi Faminu



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