By GODWIN DUNIA
That firms in the Nigerian business space have been having a tough time getting by in recent years is no longer news.
For the decades-old Guinness Nigeria Plc, it is surely a time of great struggle. And feelers from the company are that it is juggling all of its balls even as market conditions tighten.
At some other time and place, this would be like the magical fare of the notable Houdini. But this is the real world of markets. And tough decisions have to be taken.
As attested to by its Q3F19 Results, it is indeed a tough race that the company is embroiled in.
Indeed its Q3 2019 showing has not been flattering. Year on year, the brewer’s revenue numbers tumbled 4 per cent downwards while at the same time it also posted a Profit Before Tax, PBT decline of N1.6bn.
While brands like Guinness Stout, Malta Guinness and its Spirits product range maintained fairly reasonable sales outcomes within the period, the lager market continued to impact less positively on the company’s bottomline.
One more spurt of hope was recorded in the financing arena as net finance charges were significantly lowered by as much asN1.7bn.This notwithstanding, the picture that emerges overall is that of a giant that is gasping for breath.
A leading beverage and alcohol Company in Nigeria and a subsidiary of Diageo Plc, the unaudited Quarter 3 results led up to the period ended 31st March, 2019 and signals that in a matter of days, the firm would be closing its 2019 trading year and turning in its full year reports. And that would be the day! With such not-too-favourable figures coming out at this time from the beverage giant, should the market begin to brace itself for hard knocks?
In the view of a market watcher, Hakeem Akanji, a market watcher who was requested by Business Hallmark to shed some light on what he had observed about the company and its possibilities going forward, the prognosis is not looking good.
‘Guinness has had challenges for quite some time. Sales volumes and margins have been under pressure. In addition a few other operating issues have created a tight business environment for the brewer. ‘
In his view the core of the challenge may actually be located in what he described as the firm’s tunnel vision product strategy, which continues to register in the fact that despite that the company has lately attempted pursuing a products expansion and diversification strategy (as exemplified by the introduction of Guinness Gold), the company may not have really weaned itself away from a somewhat romantic attachment to their flagship stout and lager brands even in the face of seemingly shifting market dynamics. Again our analyst explains:
‘Guinness has not been as successful as Nigerian Breweries in the arena of product diversification. Their primary product is still Stout, which is not so popular amongst a younger demography. Guinness has also found it relatively difficult to break firmly into the mainstream Malt market and also dominate the spirits field. They have seemingly done better in the spirit business as young poorly educated blue collar workers are great consumers of low margin satchet spirits. However, the high elasticity of demand in spirits has made it difficult for the brewer to push for larger margins. And that is part of the challenge in my view.’
The fire first time
This however would not be the first time that the company would be caught in a decline bind. Indeed, only three years ago, Guinness was to be caught up in the murky decline waters and at that time it was a historic one: it was about the first time in thirty years that such an unsavoury trend had occurred.
At that time, the loss was attributed to the downturn in the overall economy, the effects of a seriously challenged foreign exchange policy and the devaluation of the naira which reportedly increased its production and marketing costs at the company level but also struck the company again at the broader market level as the overall slump in real wages and hampered purchasing power drove consumers to equally cut on their demand for Guinness’ brands.
Broken into figures, the firm posted a grueling loss of N2bn as at June 2016. For context, compare this outcome with the profit of N7.8bn that it had recorded in the preceding year!
Other indicators in that ‘black period’ also dominantly pointed southwards. Revenue dropped by 14 per cent year on year to close at N102bn while operating profit slumped to N4.4bn from its earlier perch of N15.7bn in the corresponding period in 2015. It was indeed a most challenging time.
Digging out of the pit
Not a stranger to reversals then, the thinking among market watchers overall now is to gauge how much Guinness has learnt from the reversal situation of the past few years and whether it is fully primed now to weather the current and future shocks.
At the peak of the earlier crisis, Guinness took a number of steps. It moved to invest some more on its Benin City plant. It also launched out to South Africa in search of markets for its flagship stout and the herbal drink, Orijin as part of measures to earn some of its required foreign exchange.
However, somewhat underscoring Akanji’s point that some of Guinness’ trouble was coming from suspects other than the overall economy, at the same time when the company’s stock was registering a 17 per cent year-on-year lowering, another brewer in the same market, Nigerian Breweries Plc, was posting a 5.4 per cent gain.
Indeed some commentators say that the present situation may be signposting that the company does indeed still need to take a more fundamental look through both the range of its product offerings in the market as well as their actual levels of marketplace competitiveness.
To put our expectations in perspective, let us flashback to the outcome from the 2017 and 2018 trading years.
After the operational and fiscal tumult of 2015/2016, the firm’s revenue grew to N142, 975,792 in 2018, up from N125, 919,817 it had recorded in 2017 which indicates a 14% spike .
In addition, the firm’s profit for the same year 2018 grew to N6, 717,605 up from N1, 923,720 in the preceding year which was a humongous 249% leap.
Declared dividend per 50 kobo share was N64, up from N50 in 2017 and representing a 28% growth position.
Analysts say that the observed rise in revenue indicates that the firm is tapping into the continuing demand for its products by Nigerians who out of habit and culture defy the negative economic headwinds to sustain their drinking habits.
Accounting for a sizeable chunk of the market share and only coming second to the market leader, Nigerian Breweries, the company boasts principal brands like Harp, Guinness Stout, Orijin and its malt offerings, Guinness Malt, Malta and Dubic Malt. There are also brands like Smirnoff, Baileys and Red Label.
Verdict from the streets
A market poll conducted in Ibadan revealed that in that market, the firm was still the market leader overall, when it came to the patronage of its flagship Guinness Stout product.
Of 15 respondents polled by Business Hallmark, five are major distributors of Beer, three beer parlour owners and the remaining 7 are consumers.
All the 5 distributors say Guinness is still top of its category and that it is equally still in high demand despite the relatively lower price offerings of other competing brands like Legend and Williams that are competing with it. The same verdict also came from the 3 beer parlour owners that were interviewed as part of the survey.
When we turn our sights to the 7 beer consumers surveyed, 5 disclosed that they were regular patrons of Guinness while the other 2 stated that they normally patronise Legend and Williams because they were cheaper.
In another scenario, a group of drinkers were asked by Business Hallmark to state what would be their choice if they were offered the choice of Guinness and other competing brands at a party. Almost to a man, their response was that Guinness would come first but that if it was not available, they would then go for other brands.
For some other respondents, they opted for Guinness or nothing else while a few stated that if there was a wine option, they would go for it as an alternative. Overall however, many of our respondents insisted that they believed very strongly in their Guinness.
Flank actions to the rescue
Reinforcing its determination to keep fighting, despite the generally unfavourable economic headwinds in the nation presently, Guinness is re-affirming that it is indeed here for the long haul as evidenced by recent steps taken to deepen its appreciation of its staff.
In a recent gesture in this regard, the company announced plans for its employees to begin to enjoy some of the best parental leave benefits in the country. Under the scheme, female employees will get 26 weeks fully- paid parental leave and male employees four weeks paternity leave on full rate of pay.
According to the Managing Director, Guinness Nigeria Plc., Baker Magunda, the move was part of a broader frame to deepen staff appreciation overall.
“We are committed to our focus on inclusion and diversity, and this takes various forms – from supporting and empowering graduates and female leaders within the business to this parental leave policy change. We believe it is a truly forward-looking decision to accelerate our work in equality for employees and their families.
“The new policy also strengthens the support for parents as they return to work including the option of flexible, adaptable work arrangements and access to free independent counseling,” he explained further.
This move also returns us to the good old concern that businesses essentially service three categories of interests; the staff, investors and the market. Ahead of its end year showing and in the midst of challenging operating conditions, the management and board at Guinness are demonstrating that they have a fair view of this mix and are willing to play it.
Other than the leave offering for staff, there is presently a flurry of promotional product offerings being thrown into the market by Guinness to reward its loyal subscriber corps. One such notable rewards scheme for customers, who are the third line of the stakeholder troika, is the ongoing 1759 #GuinnessTime promo. There also is the #MadeofMore promo and before it the #Orijin one that ran from Feb through May 2019.
But of all the ongoing consumer campaigns, perhaps the most expansive of them all at the moment would be that to drive awareness for the fledgling Guinness Gold product which very visibly is the company’s strong push to regain some of its lost mojo in the lager sphere.
Thus the company is continuing to promote and drive prize shows as a means of expanding its market share. But then all of these are coming at a cost and it remains to be seen what impact this would have on the numbers for its Q4 2019 and FY 2019 showing.
And talking of end year numbers, will the company also be splashing enormous goodies to its shareholders at the close of the trading year in the next few days?
Given the prime role that they occupy in the entire chain of actors and stakeholders, the prognosis is that this is indeed a moot point and that the company really has no choice but to find resources, even from its reserves, to keep these star actors happy through a fairly impressive dividend pay-out scheme at the close of the trading year. But how much exactly would this come to?
While the final figure would normally be determined by the actual end year results, suffice it to note here that in 2017, it was N50 per ordinary share of 50 kobo and N64 in 2018.
What is to be done?
Drawing examples from the cement sector, Hakeem thinks the thing for Guinness to do now is to come down from its high horse and fight for its life as vigorously as it can.
‘What smaller market disrupters can do, is reflected in the -2.6% decline in Lafarge’s net sale even though sales volumes rose 5% in Q1 2019. The cause: Price disruption by BUA. The market structure sees Dangote with 60%, Lafarge 30% and BUA 10%. BUA has decided to use a price leading strategy to lean on its competitors especially in Sokoto and Benin.’
When Business Hallmark contacted Viola Graham-Douglas, she asked for e-mailed questionnaire. However, she was yet to turn in any response as at the time of closing the story.
Guinness Nigeria Plc was established in 1950 and listed on The Nigerian Stock Exchange in 1965. With over 75,000 shareholders, it built its first brewery in Ikeja in 1962, and currently has facilities in Ogba, Benin City and Aba.