In a recent prospectus for a rights issue, Guinness Nigeria has reiterated that it is taking aim at the fast growing value beer segment.
Facing high import costs and a growing demand for beer from aspiring Nigerian consumers, Guinness has made clear that it intends on focusing more intently on the value beer segment. The company notes that “in the past 5 years, there has been a significant shift by consumers to value brands, making operating in the premium segment challenging.”
The value segment is the fastest growing part of the Nigeria beer market. According to Guinness Nigeria’s own half year results presentation, it now accounts for more than half of the Nigerian beer market by volume. In just one year between December 2015 and November 2016 its share of the market by volume grew from 38.1% to 51.0%.
This trend is reflected at a brand level for Guinness. Its Satzenbrau Premium Pilsner Lager is Guinness Nigeria’s fastest growing brand, which the company says reflects “its wide acceptance among consumers in the value lager segment.” Guinness also notes that in 2016 it saw “an increased contribution to revenue by its value brands for example in its Dubic brand.”
The economic downturn in Nigeria has reiterated both the attractiveness of the value sector and the challenges of the premium segment. In common with other Nigerian brewers, Guinness Nigeria has seen a surge in demand but faced significant growth in costs that have shredded profitability. To try to mitigate this, the company has increased the proportion of its locally sourced raw materials, which include sorghum and maize, from 44% in June 2015 to 70% in June 2016.
Focus on value, but also diversification
The benefits of the value segment are clear enough: Guinness Nigeria has long operated in what it calls its traditional market – stouts and malt drinks. The economic downturn has emphasized the need for a solid, locally sourced product portfolio in the value segment to target aspiring consumers but also meet the needs of mainstream consumers facing a squeeze on disposable income.
The value segment will remain important for domestic and export markets. It will also remain important as an engine of growth and for recruiting new drinkers to beer. Per capita beer consumption is low in Nigeria and its neighbours and we know the appetite to drink more beer exists.
Arguably, Guinness has been too slow to focus on the value beer segment, perhaps hoping the economy would recover more quickly than it has. For executives with less than twenty years of experience, this kind of economic turmoil is new.
Guinness Nigeria is also witnessing growth in premium brands – but that is mainly outside the beer market. It is also targeting ready-to-drink brands such as Orijin and Snapp. Ready-to-drink is one of the most innovative and competitive product segments, attracting multinationals and local players alike. Guinness talks about its Total Beverage Alcohol portfolio, signalling its desire to cover all bases.
We actually expect to see a narrative shift within the next 2-3 years: Nigeria is slowly coming out of a prolonged and damaging downturn, which will have lasted four years by the time we see real growth return in 2018. A focus on value beer is long overdue.
However, the pressure on consumer incomes is now starting to ease even if it is premature to say the good times are back. We anticipate that as the Nigerian economy improves we will see a lot of focus on innovation and growth in mainstream and premium non-beer segments. It’s not that the value beer segment won’t be important, but expect to hear about premium brands again in a big way from 2019 onwards.
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