…low cost sachet alcoholic drinks threaten big brands
In various streets and corners in Lagos and other adjoining states, it is an 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.
Drinking habits of Nigerians are rapidly changing. Before now, having a drink largely meant visiting a pub to take bottles of beer with friends or colleagues. And for the very low income earners, visiting what is known as “ogogoro joints” to take hot drinks. While the old tradition persists, and a visit to pubs in the evening hours remains favourite pastime for many Nigerians, the advent of sachet alcoholic drinks is increasingly altering the norm.
Growing number of people are taking to buying sachets or mini bottles drinks while walking down the streets as one would buy biscuits. More critically, there has been a convergence of sorts between those who would ideally take beer and the regular patronisers of hot drinks. Sachet alcoholic drinks are increasingly blurring the line between the two categories. It is affordable and doesn’t carry the negative stigma of the regular locally brewed “ogogoro”.
“Na people wey get money dey drink beer now,” said Tony, a man in his early 50s clutching three sachets of 30ml Chelsea Dry Gin at Iya Segun’s shop at Ojodu Abiodun.
“I used to drink beer but not anymore. I can no longer afford to drink it. This one is cheaper. These three sachets is N100. If I finish taking them, I will go home satisfied. But one bottle of beer is N200 or N250. I have to drink two bottles to get the amount of satisfaction I get with these sachets so it’s expensive. This one gets me high and I go home.”
Major beer and other alcoholic beverage brands in the country are struggling increasingly to make profits. While this has largely been attributed to the tough economic environment and increased excise duty rates, not many have paid attention to the impact these relatively affordable sachet drinks is having on the demand for major beer brands.
On Iya Segun’s table, gins of different colors and varieties are on display: Fire Ginger and Spice Gin, 50 ml, 42 percent alcohol volume, made by Accra based 1Africa Industries Limited; Action Bitters 50ml, 40 percent alcohol; DeRock Liqueur; Chelsea London Dry Gin; Squadron Dark Rum – all of which are produced by Intercontinental Distillers Limited, Ota, Ogun State; Seaman’s Schnapps, produced by Nigeria Distilleries Limited, Ota; Striker Bitters made by Shash Industries Limited, Ota; Vodka Chocolate, produced by Agrim International, FZE, Calabar; Origin Bitters, produced by Guinness, among others.
“All the brands sell fast,” Iya Segun says. “My challenge is sourcing enough funds to enrich my stock. All the brands are moving. Anyone they ask for and you don’t have it, they will take another one. Apart from the sachets, there are also the small bottles which go for N100. But the sachets sell faster because they are cheaper.”
Iya Segun’s refrigerator contains beer of different brands, but mostly Trophy. She says people rarely drink them.
“Beer doesn’t sell like these sachets. This is where the market is now. They prefer it because it’s cheaper.”
Aunty Dosun owns a chemist shop at Palm View, a low income Estate in Ifo, Ogun State. In addition to drugs, she has brands of beer, soft drinks and varieties of sachet gin on display.
“It is the sachet drinks that attract most customers,” she says. “You can’t even compare them with beer. Not many people drink beer because of the price. These ones sell very well.”
At Adegbitan Street, off Bola Hassan, Ketu, Lagos, Mama Sara’s business starts at dusk. On offer are local herb “Agbo” for different ailments, served hot from the pot with “kpomo” and beef pepper soup and gins.
Her customers are a handful and regular. The gins are the major attraction, pepper soup and “Agbo” are to complement.
“This is where we come to relax after the day’s hard work,” says Dele, a man in his 30s. “The drinks help your bones to relax.” Asked how often he takes beer, he says, “rarely.”
The increasing shift away from the more expensive beer brands, analysts suggest could partly explain the struggle for profitability among the country’s leading brewers.
In its Q2, 2019 unaudited results, ended June 30, 2019, Nigerian Breweries Plc (NB) saw its revenue decline by 1.43 percent to N170.19 billion from N172.66 billion in the previous quarter. Profit Before Tax also declined by -29.55 percent to N19.41 billion, while Profit After Tax declined by -27.76 percent to N13.318 billion and Net Assets also declined by -1.0 percent to N165.23 billion from N166.83 billion as at December 31, 2018.
The negative balance sheet is a continuation of its poor 2018 financial year result which saw profits plunge -41.2 percent to US$27.54 million from US$37.46 million posted in 2017, while gross income declined -11.6 percent to US$350.04 million in 2018 from US$395.8 million in 2017, and net assets shrunk -6.4 percent to US$460.16 million from US$491.8 million.
Guinness Nigeria Plc has not fared much better. In its Q2, 2019 results, profit before tax and profit after tax declined -44 percent to N2.5 billion and N1.7 billion year on year on the back of a gross margin contraction of -42 percent year on year to 33 percent. The company’s sales also dropped by -50 percent quarter on quarter.
Guinness had posted profit before tax loss of -27 percent year on year, to N2.6 billion, and -17 percent profit after tax decline year on year to N1.7 billion in Q2, 2019.
International Breweries, makers of Trophy, subsidiary of world’s largest brewer, Anheuser-Busch InBev (AbInBev) and the only arm of the company listed in the Nigerian Stock Exchange, continued in the same trajectory, posting a loss after tax of N6.84 billion in six months, ended June 30, 2019.
“If you don’t redefine your marketing strategy, you would be definitely affected by the current economic issues,” notes Dr. Bongo Adi, analyst and senior lecturer at Lagos Business School. “If you look at the market, you will observe that there is concerned budget on the part of consumers.”
It’s a time tasted experiment. When Promasidor Nigeria Limited – formerly Wonder Foods – makers of Cowbell milk began operations in Nigeria in March 1993, it designed its powder milk in 400 gram, similar to the market leader, Peak milk. But it proved to be a terrible business model. It could not compete with Peak.
Consequently, it began to import larger packages of milk which were then sold to wholesalers who then scooped the milk into smaller polythene bags for resale. This did slightly better. But it was when the company decided to import smaller sachets of Cowbell milk to target middle and low income earners that it practically took the market by storm, leaving Peak and the rest gasping for breath. By 2010, it has recorded an annual turnover of $300 million.
Peak, would eventually swallow its pride to introduce economy sachets of its own. Presently, all milk and tea brands have adopted the strategy of targeting low income earners with sachets packs. It is becoming the most effective way to stay afloat as average per capita income in Africa’s largest economy continues to shrink.
“Given relatively high inflation rate,” Adi notes, “concerned budget of households and individual consumers, some will shift away from the higher end products to lower quality but more affordable varieties. The determining factor for consumers is affordability rather than quality.”
Perhaps, nowhere else has this prism been proved true than the detergent market where low cost detergents have largely displaced older brands, forcing yesterdays market leaders to adjust.
Unilever’s signature product, Omo ruled the market for ages, before being dethroned by Expand Global Industries’ So-klin and more recently, Procter & Gamble’s (P&G) Ariel – both of which have held sway for many years. But more recently, more affordable brands like Nourdm Global Company’s Magik have taken the shine off Ariel and Klin, particularly in the South West part of the country.
Also in the category of new market leaders are Expand Global Industries’ Nitto, Eko Supreme Resources’ Good Mama, Unilever’s Sunlight and PZ Cussons’ Canoe, all of which are sold at much lower prices than Aeriel and so-Klin.
“Ariel used to sell more, but it is no longer so,” Iya Shade, a shop owner at Alapere, Ketu, Lagos has noted. “Now people buy more of Majik.”
“It is price,” she explained. “Magik is N50 and Ariel is N80. So, people just prefer to buy Magik because there is no money.”
The introduction of 5.0cl sachet Origin bitters sold at N50 by Guinness Nigeria suggests that the company is already paying attention to the growing trend.
“Origin Bitters is one of the favourites,” said Mr. Taiwo, a customer at Dosun’s shop. “People respect it because it’s Guinness product.
“But among all, Chelsea and Seaman’s, which is sold for N100 for three sachets are the most selling brands. Fire used to be very popular because it has ginger, but not anymore because the ginger content is no longer as pronounced.”
It’s the same issues that big brands in the beverage drinks industry like Coca-Cola and 7Up have had to deal with in confronting ‘gate crashers’ like Rite Food’s Bigi Cola and Ajeast Nigeria’s Big Cola who are able to offer more volume for less price at slim profit margins because they have little encumbrances.