Sunset For The Nigerian Brewery Sector

“If a man takes no thought about what is distant, he will soon find sorrow near at hand.”

Confucius, 551-497BC. VANGUARD BOOK OF QUOTATIONS, VBQ p 70.

Something absolutely strange is happening in the Nigerian brewery sector. As a group of long-term foreign investors are pulling out, new investors, with no previous experience in the sector, are eagerly grabbing their shares – obviously with the full intention of making tons of money from their new acquisitions. It is perhaps the most risky undertaking by anybody in the Nigerian business sector that the nation has experienced in a long time.

Given my experience in three breweries during the first great wave in the 1980s, and my abiding interest in the sector till today, it is difficult for me to understand the basis for the enthusiasm for brewery shares. Right now, breweries and their brands are in gradual but, noticeably steady decline in terms of aggregate volume demand and appeal to core demographic age group. A brief report on findings during the Sallah festival in Lagos, which is a reliable weather-vane for studying consumption trends, will help to explain the situation in which breweries find themselves now.

 Several fun spots in Lagos Island were contacted on Friday, two days before Sallah day. Each agreed to keep records of drinks ordered by customers thought to be 18 to 40 years old and to just group them into beer/stout and other drinks – leaving out carbonated drinks (minerals). The counting ended on Tuesday, two days after Sallah day. The result was astonishing. Beer and stout accounted for less than 35 per cent of drinks purchased.

 A similar survey conducted four years ago yielded 63 per share for beer and stout. Meanwhile, demand for energy drinks have risen sharply since then and they now appear to be the products of choice among the age groups which hitherto formed the bulk of beer/stout drinkers. That, by itself, should be of concern to brewery executives. However, why energy drinks are now preferred by the youths should worry all of us. They are frequently mixed with powdered illicit drugs which cannot be mixed with beer and stout.

 On Sallah day we conducted random visits to several parts of Lagos where canopies were set up and there was conviviality. The objective was to determine the broad preference for beer/stout and energy drinks without reference to brands. Again, the result of the survey was emphatic. Unlike the 1970s to about three years ago, when beer/stout dominated, this year was different. We observed several tables on which no bottle of beer/stout could be found; while power drinks were available. Clearly, the shift in demand from beer/stout to power drinks is becoming permanent – posing a challenge to breweries.

WERE THE MULTINATIONAL LEADING BREWERIES AWARE OF THIS TREND?

Just as this column was started, it was announced that HEINEKEN, the world’s largest brewery had sold 100 per cent of its shares in CHAMPION Brewery, Uyo. That is only about three weeks after majority shares in GUINNESS Nigeria Plc changed hands. I will certainly not be surprised if South African Brewery, SAB, the second largest global group also announces sale of shares to new owners. BUDWEISER, “the King of beers”, its major brand has struggled unsuccessfully to make a strong impact on the Nigerian market. Suddenly, three of the world’s largest beer marketers are facing a Nigerian market which is shrinking rapidly – despite a growing population.

The next four to five years would be very difficult for the sector as beer – the common man’s alcoholic beverage is not only being priced out of the reach of the masses; it is under attack from other interests laying claim to the young consumers’ income – not just power drinks. Until about ten years ago, a young man with discretionary income would spend a lot of it on beer/stout with his friends. The lion’s share of money in the pocket was spent on “Booze and broads”. Getting drunk on booze was the favourite form of enjoyment for those now about 50. From about a decade ago, illicit drugs and betting on football matches started eroding the dominance of beer/stout. Today, beer/stout consumption is definitely in decline – perhaps permanently. Even sex is now a distant preference to drugs and gambling. In the past, week-ends meant several young and old people getting drunk in any community. Right now, in Lagos Island, which is my laboratory, hardly anybody in any area is now known as a drunkard. Given N1000, the young men will most probably split the amount between Colorado, power drink and Bet Naija. Beer and sex are now regarded as  low priority – as many proprietors of Guest Houses are finding out. Many are now turning their hotels to residential or business buildings.

 The definite shift in preferences is unlikely to be reversed for various reasons; which should be of interest to investors in breweries; as well as distilleries. It is really difficult to determine which came first (the age long chicken and egg riddle) in driving the decline in aggregate consumption between deepening poverty caused by massive unemployment and the transition of Nigeria from a drug-transit country to a major consuming nation. Drugs, generally being more addictive hold their consumers more strongly than alcohol. Seldom does a drug addict switch to beer/stout; while thousands of young people drop beer for drugs and never return.

 Until about ten years ago, beer was “the opium” of the Middle and Upper Lower Classes in Nigeria. Not any more. Real opium is challenging for the consumers money. As a brewery Marketing Manager, I knew who patronised all of us in the sector. And that was the situation until the gradual impoverishment of the masses began from about 2014. As the economy shrank steadily in constant dollars, the Middle Class collapsed into the Lower Income Class and the number and percentage of those living in poverty exploded. It was only a matter of time before the brewery sector would start its decline. It is too early to forecast whether the current trend has brought an end to the golden age of breweries.

The sector suffered a terrible setback from 1984 to 1988; from which we thought it would not recover. Yet, by the 1990s, it was stronger than ever before. One thing however is certain. The reversal of fortunes will not occur for at least five or six years. During that time, another round of brewery closures will occur. Competition within the sector, which can be characterised as friendly now, will become more hostile as the fight for market share intensifies. More than ever, survival is once again at stake. Not every brewery will survive the battle.

FATE OF MINOR SHAREHOLDERS SEALED

 Like several individuals formerly associated with breweries, I bought and profited immensely from breweries stock; so did a few people known to me. Unlike others, I foresaw the current predicament in which the sector finds itself and sold my shares. Last year’s results have not only deprived shareholders of the dividend they annually collected; they have brought to an end, for years, if not for ever, the possibility of collecting any more dividends from breweries.

Most likely, the new core investors will de-list from the Nigerian Stock Exchange, NGX and go private. Furthermore, the new core investors might not be so keen to rebuild the market. I have a hunch they are more interested in real estate – not beer and stout. For that reason the breweries might close down eventually.

To be continued…

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