…as competitors cut down market share
Faced with declining profit margin and market share increasingly being cut into by rising Bua Cement and Larfarge, Elephant among others, Dangote Cement Plc. is mapping out new strategies to maintain dominance in the cement market.
While the company, promoted by Africa’s richest man, Alhaji Aliko Dangote, had for many years now, maintained an unassailable dominance in the cement market, recent survey by Business Hallmark showed that while it still maintains a lion share of the market share, others like Bua, Larfarge and Elephant are mounting intense competition.
In the South West for instance, Elephant is gradually emerging as one of the market leaders, particularly in the Ogun State axis, while Larfarge and Bua are making increasing in-roads.
“Many people now prefer Elephant because it is stronger,” said Mr. Idris Taiwo, a Ogun based building contractor. “Dangote dries faster so in areas like Ajah and Lekki where there is water, people still overwhelmingly prefer it.
“But in areas like Ijebu, Imoko, Abeokuta, Ilaro and other places here, a number of people go for Elephant because, although the block moulded with it takes longer to dry, it is stronger when it does. Again, a number people prefer Elephant for plastering these days.”
But he conceded that overall, Dangote is still prominent. An assertion that tallies with that Mrs. Beatrice Ologe, a cement dealer at U-Turn Bus stop, Abule Egba, Lagos.
“Dangote is still the most selling product here,” she said. “But Larfarge is now coming up in demand, unlike before. Bua is also moving seriously.”
In parts of the North East and North West, Bua is becoming increasingly prominent, but Dangote remains dominant in the North Central.
“Here, Bua is moving more,” said Mr. Tony Ezugwu, a dealer in Adamawa, North East. “most people buy Bua, it’s quite popular.”
Alex Nwaezea in Abuja noted that Dangote is still the most used cement brand in the capital city, “But Larfarge is coming up too.”
Dangote, however, has no real competitor in the South East as it remains ever dominant. But this may change if Ibeto Cement Company Limited, a private company owned by Anambra born business man, Cletus Ibeto, returns to the market. Bua is also establishing a presence gradually.
The growing competition is invariably reflecting on the bottom line of the country’s leading brand.
Dangote Cement’s Q2, 2019 sales declined by -5 percent Year on Year to N227.6billion, although gross profit grew by 8.68 percent from N122.254 billion in the second quarter of 2018 to N133.879 billion in the second quarter of 2019, while profit before tax declined by 30.14 percent to N76.528 billion in the second half of the year, down from N109.570 filed in the same period of 2018.
Profit realised stood at N58.986 billion in the second quarter of 2019, down from N71.955 billion achieved in the same period of 2018. Within the period, production volume declined by 6.2 percent year on year to 3.6 MT in Nigeria, while production was unchanged at 2.3MT across operating nations in Africa.
In contrast however, profit after tax grew by 25 percent year on year on the back of lower effective tax rate of 33.6 percent (compared to 46.8% Q2 2018). The lower tax rate is reflective of the pioneer tax status (for Ibese lines 3 and 4 and Obajana line 4) that the company received in Q4 2018.
The result represents growing decline in the company’s fortunes. Its Q1 2019 profit before tax had also declined by 27 percent year on year, while profit after tax shed 25 percent year on year. This is on account of a -121 percent year on year contraction in gross margin to 58.6 percent and a 28 percent year on year rise in operating expenditure.
While, as noted earlier, Dangote still maintains dominance in the country’s cement industry, rising competition has seen it shed three percent market share from June 2018, coming to 63 percent from 66 percent with Bua rapidly increasing capacity and taking up increasing market share.
Earlier in the year, BUA signed a contract with Chinese cement manufacturing company CBMI for the construction of a new plant, the Kalambaina Cement Line 2 plant in Sokoto State, planned to manufacture 3million metric tonnes of cement per annum. This had come just weeks after Nigerian authorities approved the merger between Kalambaina Cement and the Cement Company of Northern Nigeria (CCNN), in which BUA owns a 90 percent stake.
Bua had in October 2018, completed another cement plant project – the Obu Cement line 2 in Okpella, Edo State and had earlier in June, commissioned its 1.5million tonnes per annum Kalambaina Cement Plant line 1 in Sokoto state. When the new Kalambaina Cement Line 2 plant is completed it will bring BUA Cements total installed capacity to 11million tonnes per annum and will cement its position as number two in the industry behind Dangote. Larfarge in third is also making strides. In Q2, 2019 it posted strong results in Nigeria despite the slowdown in market trends, closing flat year on year from a six percent growth in Q1 2019.
Ibeto Cement is rarely in circulation. But last year, the company signed a deal to get $850 million in financing from Milost Global Incorporated, according to the New York- based private equity firm. Under the deal, Milost will provide $500m in equity and $350m as debt to the cement maker. Milost had said in a statement on its website, that it was a binding agreement by the two parties.
Dangote Cement is taking note and adopting strategies to stay ahead of the pack. The company had not responded to an email inquiry seeking to ascertain its response to the new reality at the time of writing this report.
But it recently announced that it would now be targeting customers directly in a bid to boost sales and “overcome tough competition” in Nigeria, a departure from the age long tradition of selling through middle men or major distributors.
The company’s Group Managing Director, Engr. Joseph Makoju who disclosed the new strategy at an investor call in Lagos, said it is seeking to increase Nigerian market share from 63 percent to 65 percent with new strategies implemented at the end of the second quarter.
The measures, he said, were already yielding positive results. “We are ahead of 2018 and it is looking like it is going to have our best July. We expect to have stabilized at the end of third quarter he said, expressing hope that “President Muhammadu Buharis cabinet selection and confirmation will grow cement demand for the rest of the year.
“Expectations are high that ongoing government projects will be completed and that should give a big boost to sales,” he said.
The company now allows individuals to order DANG0TE3xCement directly from the factory at a promo price of N1300 per bag.
Part of its strategies has also involved rewarding customers in promo packages. On the back of an earlier promo package, tagged Mega Million Dash introduced in 2015 with over N300million on offer, in which buyers of Dangote Cement stood chances of winning N1million each, the company has introduced another promo tagged Bags of Goodies, which according to it, is designed to produce 21 million winners across the country, and had within two weeks produced three Star prize car winners.
The winners included Mr. Benjamin Igherighe, a Dangote Cement retailer in Abraka, Delta State; Mrs. Godwin Chimezie Success, an Ibadan based house wife and Mujahid Shiabu. Makoju, said the promo is as a way of contributing to the economic wellbeing of the consumers of its products.
“The promo is to reward valued consumers for their unflinching partnership in ensuring that our range of cement products remains today the first choice for construction purposes across the country. The consumer promotion gives opportunities for existing and new consumers to overcome their struggle for economic emancipation by winning any of the give-away items, which has economic value,” he said.
“We have made it so transparent that you dont have to go through any raffle or draw associated with many other promotions in the country. You win instantly because what is revealed in the scratch card is what you win.”
The company’s Marketing Director, Mrs. Funmi Sanni noted specifically that the promo was an attempt to grow the business by creating value.
Consumers are at the heart of what we do; without them there is no business. Consumers are important and a fundamental factor of production, without which production process is incomplete and our ability to remain in business becomes impossible,” she noted.
“To grow our business, we must constantly create value in terms of quality product and service, competitive pricing and depositing in consumers emotional bank accounts in order to become their preferred choice of brand at the point of purchase.”