By AYOOLA OLAOLUWA
Nigeria’s economic slowdown has hit the country’s brewery industry hard, with some of the major players recording the worst performance in nine years. According to the Half Year (H1) 2020 reports of brewing companies operating in the country obtained by Business Hallmark, the entire sector performed dismally in the period under review.
The four major players in the sector, Guinness Nigeria Plc, Nigeria Breweries Plc, International Breweries Plc, and Champion Breweries, though declared profits, recorded a sharp drop in revenue. For example, NB Plc, which produces popular brands like Star Lager, Radler, Heineken, Guilder, Harp, among others, recorded its lowest net profit in seven years since H1 2014.
In Q1 2020, the company posted just N83.9million Profit After Tax (PAT), compared to N5.5billion PAT it posted in Q1, representing a massive 98% decline. Sales were down -21% year on year, resulting in a -673 basis points contraction in gross margin.
Another industry player, Guinness Nigeria Plc, did not fare better, as it suffered its biggest loss in nine years. According to the company its profit slumped by 129 percent from N5.48 billion in 2019 to a loss after tax of N12.58 billion in 2020. The company blamed the poor performance on the impact of COVID- 19 on its operation in the report.
Like NB Plc., Guinness Nigeria Plc also has iconic brands like Guinness Extra Stout, Guinness Smooth, Malta Guinness, Guinness Gold, Harp Lager, Smirnoff Ice, Satzenbrau, Dubic, Snapp, Orijin Spirit Mixed Drink, Orijin Bitters, Smirnoff Ice Double Black with Guarana, Orijin Zero and Orijin Herbal Gin, Baileys Delight etc on its stable.
Despite the availability of these popular brands, the fortune of the brewing giants has continued to take a dive with investors not receiving dividends as against N3.329 billion they shared in 2019. Another brewing company that is facing hard times is International Breweries Plc, makers of Trophy Lager, Beta Malt, Budweiser, Castle Lager, Eagle, Hero and Grand Malt.
According to the company’s Unaudited Condensed Financial Statements for the 6 months ended 30th June 2020, its loss from continuing operations worsened in the first half of 2020. It recorded a loss of N9.357 billion in H1 of 2020 despite receiving a tax credit of N2.625 billion.
The unaudited statement of profit or loss and other comprehensive income showed that the cost of goods sold took a huge chunk of the company revenue to the tune of N51.075 billion; 84.26% of the revenue, with gross profit margin amounting to 15.74% (N9.539 billion).
However, the company’s administrative expenses of N10.702 billion alone wiped out the gross profit registered.
As at June 30, 2020, International Breweries total liability tops N202.659 billion. IB Plc, however, has a strong cash flow. The cash and cash equivalents as at 30 June 2020 stood at N31.628 billion, boosted by N31.806 billion cash and cash equivalents at 1 January 2020.
In the same vein, Champion Breweries Plc, the maker of Champion Lager Beer and Champ Malta, suffered over 100 percent drop in profit after tax in the second quarter of 2020.
According to the Unaudited Condensed Interim Financial Statements for the Six months ended 30th June, 2020 released to the Nigerian Stock Exchange and the Investing public by the company, revenue declined by 2% in the first half of 2020 to N3.374 billion from N3.448 in H1 2019, while profit after tax slumped by 42% to N120.107 million from N208.847 million reported in H1 2019.
Likewise, the company reported a loss in the second quarter on the year (April to June), as profit dipped by 118% to minus N18.288 million from the N99.110 million posted in Q2 2019, following a 12% drop in revenue for the same period in 2020. Thus, the brewer’s revenue declined to N1.427 billion in Q2 2020 from N1.626 billion in Q2 2019.
Business Hallmark findings revealed that though the travails of the brewery sector started a long time ago, it was compounded by the impacts of the COVID19 pandemic which led to the lockdown of the nation in March 2020.
According to findings, the nation’s economy began to experience economic slowdown in 2014 owing to the fall in global oil prices. In 2015, real GDP growth fell from 6.3 percent in 2014 to 2.7 percent, and companies did not have access to the needed foreign exchange to purchase raw materials and machinery.
The problem was compounded by the cluelessness of the new regime of President Muhammadu Buhari which allowed the economy to enter recession. The resulting weakened naira, spiraling inflation and diminished consumer spending impacted negatively on the beer and alcoholic drinks sector.
According to a developmental economist, Dr. Henry Akinbadejo, non-essential and luxury goods like beer and expensive alcoholic drinks are the first casualty as people start to cut cost and adjust to the loss of income.
“Beer and other refined alcoholic drinks are the kinds of discretionary goods that consumers in the developing world are quick to either buy when times are good or ditch when things get tough.
“Though, available data suggests that people tend to drink more when they are down or burdened, what happens is that they tend toward cheaper brands when they can no longer afford the normally expensive popular brands”, Akinbadejo said.
While the brewing industry was still grappling with the effects of economic challenges brought about by the crash in crude oil prices and bad governance, the still rampaging coronavirus pandemic compounded the situation. Though, dire measures like restrictions and lockdown put in place by governments to halt the spread of the disease have largely been lifted, effects of the pandemic are still evident.
For over five months, virtually all the sectors/players, particularly the tourism/hospitality industry depended on by the brewing industry for survival were under lockdown. Most of them include hotels, nightclubs and eateries were under lock and just allowed to reopen.
Owing to this, sales have plummeted and is just picking up after the easing of strict measures put in place by the federal and state governments. Also, the freeze on all social activities like weddings, burials, birthdays, AGMs and others that feed the brewery sector also contributed to the dwindling fortunes of the sector.
A sales agent with NB Plc in Lagos told our Correspondent that while the restriction lasted, the company lost over a billion naira weekly in Lagos alone to unfulfilled or cancelled orders for botched parties.
“I am not talking of the whole supply chain, since I don’t know much of what happens, but just the ‘Outdoor Catering division which I am part of. We render outdoor service to Nigerians in need of cold drinks and services.
‘How it works is that a customer approaches our company that he or she wants to hold an event. After mentioning what they needed and paid for it, my division is saddled with the task of delivering the chilled drinks to the guests in customized coolers on the D-Day free of added charges.
“You can imagine a party with over 1,000 guests needing drinks. Some consume as many as ten bottles at a go. So, you can extrapolate what we lose weekly, even daily. Lagosians hold parties every day just that the tempo increases as the weekend approaches”, declared the sales agent who did not want his identity revealed.
Apart from the effects of Covid19 on the sector, dwindling purchasing power among majority of Nigerians has also led to change in taste and appetite of drinkers.
During his visits to several drinking joints in Lagos, our correspondent discovered that while the rate of consumption of beer and alcoholic drinks has gone down, many Nigerians who could not do without drinking, have also resorted to going for cheaper brands.
For example, while a bottle of Star, Guilder Stout, Star Randler and Heineken go for between N300 and N500, depending on the joint and location, Hero, Trophy, Champion Lager, Castle and ’33’ sell from N200 to N300, also depending on the joint and location.
Some bar and nightclub managers who spoke with BH blamed the lull on economic depression brought about by Covid19. A bar attendant at Pedro’s Bar, Fagba, Lagos, lamented that things have not returned to normal since government allowed them to restart operations.
“It is quite unfortunate. When Coronavirus was ravaging us, we blamed the problem on the disease which forced the government to shut us down. Now, it (disease) is no longer there as government has lifted the lockdown.
“There is a big guy who works for an IT company who normally comes here after close of work to relax for few hours before retiring home for the night.
“His bill is always over N20,000 every night as he not only pays for himself, but everyone in the bar during his visits. But these days, he rarely spend more than N2,500 and rarely pay for people again.
“When I approached him to know what the problem was, he confided in me that since April this year he had been placed on quarter salary in his place of work and could not afford to spend money the way he used to in the past. I felt bad after speaking with him.
“The table has turned as he now gets free drinks on the bar on days he is not that buoyant. Many of our clients are in the same situation. My brother, business is really bad”, he said.
Dr. Akinbadejo referred to what our Correspondent observed among drinkers at pubs and drinking joints as ‘down-trade’. According to him, this happens when consumers abandoned premium products for cheaper brands in other to save cost.
The immediate-past Managing Director of Guinness Nigeria Plc., Peter Ndegwa, had in an interview with BH in 2018, said the rising volumes and falling profits reflected a huge ‘down-trade’ among drinkers.
According to Ndegwa, at the start of the decade, beer sales were dominated by mainstream and premium brands, such as the Harp Lager and Guinness Foreign Extra Stout. The ex-Guinness helmsman noted that back then, the so-called value beers, produced by small regional breweries, had less than 15 per cent of the market.
“By 2015, their share had risen to 30-35 per cent and has since doubled to two-thirds. This is a segment that almost didn’t exist six years ago. It has transformed the dynamics of the industry.
“We have to change tactics. It is no longer a question of category. We have gone from offering premium beer to offering spirits, beer and adult soft drinks at prices the consumer can afford”, Ndegwa had said.