The lull is the Nigerian economy has adversely impacted the beer market

By OKEY ONYENWEAKU

A few days ago, Guinness Nigeria disclosed its end-year results for the period closing June 30, 2019 to the public through the Nigerian Stock Exchange (NSE). The outcome was generally expected as it recorded a decline in its top and bottom lines given the harsh operating macro-economic environment.

However, a more critical look at the company’s performance shows that it was not particularly a bad outing for it despite the apparent decline in profits. More interesting to its shareholders is the dividend payout of N1.84 per share that the company has correspondingly declared. Though, this year’s dividend payout represents a 17 per cent shave compared with that paid year on year, shareholders would be consoled in the fact that the firm yet thought it fit to reward shareholders at a time of profit-drought.

Indeed, the brand name, Guinness Nigeria still rings a bell in the ears of many, especially to those who are 40 years of age and above. The lager beer arguably shared the domination of the brewery industry with Nigerian Breweries through the 1980’s, 1990’s and beyond. While Guinness Nigeria showed its strength with its Stout, Malta Guinness and Harp brands that were its premium products, Nigerian Breweries had the indomitable Star Larger Beer, Gulder and Heineken. Guinness products created such excitement that some of them were nicknamed locally by many consumers depending on which part of the country one hail from.

While the South Eastern Nigerians call the Guinness Stout, Odeku, South Westerners know it as Baba Dudu.

However, the company’s brand became more popular as it advertised its Stout very heavily and caught the admiration of many. ‘Black thing good o’, as a catchphrase was in the mouth of many that even many women who were ordinarily not inclined to associate with anything bitter soon became ardent consumers and admirers of the drink. Guinness Stout was relished by men and even women of almost all adult age groupings.

The company’s market share sprinted to the top as a result of these developments even as it   almost also knocked off any other brands from the stables of its competitors.

Guinness Nigeria had entered the Nigerian market precisely in 1962 to fight for market share in a space where Nigerian Breweries, which had been established in 1949, dominated the market, along with a few other imported beer products. Soon after its inception however, its products began to dominate tables at almost every social event and competed effectively with Star Beer and Gulder that were products of NB Plc.

Guinness secured a substantial market share not only in terms of sales; the capital market community equally recognized its potentials as stockbrokers recommended its stock to most of their clients that were invested in the market. The good times were rolling.

But ever since the Nigerian economy began to slip into very slow motion in growth terms, it has become fashionable for firms like Guinness to blame the decline in the company’s profit position on the shrinking Gross Domestic growth (GDP) which stood at 1.9 percent in the second quarter of 2019. And as things stand too, Guinness Nigeria is also not spared the challenges that still lie ahead. But on the overall scale of events, many are going to judge Guinness by its performance over the years.

Guinness Nigeria posted a N5.5 billion profit after tax in its full year results for the year ended June 30, 2019 as against N6.7 billion reported in 2018, representing a drop of 18 per cent. The giant brewer earned revenue of N131billion as against N142.9 billion grossed in 2018, a decline of eight per cent.

Its Managing Director, Guinness Nigeria Plc, Mr. Baker Magunda, said that the company would continue to work on all operating indices.

“Revenue for the year declined eight per cent compared to same period last year on the backdrop of an extremely challenging macroeconomic and competitive environment. The cost of the increase in excise duty at a time of stagnant consumer disposable income had to be absorbed by industry players.

“Despite the tough competitive landscape, we continue to see good growth performance from Guinness, Spirits and the malt drinks.” Magunda also said.

He explained that a combination of factors such as inflation, last year’s royalties and accruals not approved by National Office for Technology Acquisition and Promotion, led to a 17 per cent decline in gross profit for the year.

According to him, marketing expenses reduced by 16 per cent and distribution costs initiatives partly mitigated the gross profit decline, thus leading to a fall in operating profit by N4.4bn.

He added that a 46 per cent reduction in net finance costs further helped to cushion the decline in operating profit.

As the monies in the pockets of consumers continue to shrink, the quantum of money budgeted for the consumption of beer and other drinks grow smaller.

Guinness Nigeria’s management has every reason to worry not only for reasons that the Federal government had reviewed upwards taxation on alcoholic drinks and Tobacco which affect brewers adversely but also because a substantial size of its market share has been taken over by mass market producers who tend to bring out products that are more affordable and appeal more to the lower income segments of the population.

Another problem that has hobbled the performances of brewers is that of insecurity. The menace of the terrorist Islamic sect, Boko Haram and the nefarious activities of herdsmen have reduced the distribution of the company’s products and sales in the Northern part of Nigeria, especially the North East.

It could also be the reason for high inventories in the company’s warehouses.

Reviewing the company’s profitability position in the last five years from 2015 to date, it will also be noticed that Nigerian Breweries’ profits also declined by 41.2 per cent from N33billion in 2017 to N19.4billion in its financial year ended 2018. There was also the reduction in cost of sales which brought the gross profit to N126.9 billion compared with N143.5 billion the previous year even as NB Plc’s revenues also dropped marginally from N344.5billion to N324.4billion in the year of review.

What makes its future even tougher is that many Nigerians are now beginning to be more health conscious which implies that they may be cutting down the consumption of foods they consider unhealthy. Of the lot then is what consumer behavior watchers say is a conscious effort to by the public to stop taking a lot of alcohol and sugary beverages which affects or reduces the quantities of these drinks that are bought or taken.

The enthusiasm with which people enjoy these high-end alcoholic drinks has also waned.

This is even as its effort to rev-up market share with the introduction of the sassy Orijin brand, among other products was generally flat.

In a recent Business Hallmark survey, ‘Beer Wars: AbInBev displaces Guinness as industry leader’, it was revealed that:

‘’In terms of products variety, Guinness, Stout, Harp, Satzenbrau, Dubic, Royal Kingdom, and an array of spirit, alcoholic and non alcoholic beverage brands: Origin, Smirnoff, McDowells, Baileys, Johnnie Walker and Gordons Dry Gin, comes second after NB.

But AbInBev has toppled it in revenue as recent results show. Meanwhile, the company will be looking to introduce some of its brands, including Stella, Artois, Contender, Bud Light, Corona, Aguila among others’’.

The report also explained that it is a ubiquitous sight: tables and kiosks displaying varieties of small sachet gin, vodka, alcoholic bitters and the likes. In the day hours, customers come in trickles. With N50, they buy one sachet and with N100, three. At nights, the kiosks are beehive of activities. Men, young and not so young – and even women, hang around, drink sachets of gin or vodka once and again, and order a plate of “kpomo” for N200 or less.

What this implies that drinking habits have changed as those who drink go for low priced ones while others go for healthier drinks, leaving the bigger brewers in the lurch.

Mr. David Adonri, a Lagos based analyst believes that the weak economy which has shrunk the purchasing power of the beer drinking population caused by low wages could be affecting the company’s sales figures:

‘’People no longer drink beer as before when the economy was fairly good’’, he says.

Efforts to reach Guinness Nigeria’s Corporate Relations Director, Viola Graham-Douglas to shed more light on the issues at stake proved abortive as our calls and text message were not responded to.

Meanwhile, trading in the company’s shares closed at N37.30 per share last Thursday as the market remained bearish.