Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - RSS Feed

NB, Guinness unfazed by SABMillerâ€âââ‚



Faced by the imminent entry into Nigeria’s vibrant beer industry by SABMiller, the world’s second largest brewer, with its discount (cheap) beer, Nigerian Breweries (NB) plc, Nigeria’s leading brewer and Guinness Nigeria plc, number two player in the industry plan to retain their strategy of producing premium beer. NB and Guinness appear to be losing no sleep over plans by SABMiller to introduce cheap beer when it makes its full entry into the Nigerian market.
Highly informed sources within NB and Guinness say the companies will retain their strategy of producing premium beer for Nigerian consumers.
SABMiller which has already opened shop in Nigeria in its quest to tap Africa’s $3 billion (N43.9 billion) informal market, is spurring farmers to raise cassava and barley for its new discount beers. Apart from its traditional brands, the company plans to storm the Nigerian beer market with cheaper African beer.
SABMiller has bought Pabod Breweries, Port Harcourt and Standard Breweries in Ibadan, the companies this South African world brewing giant is using for soft landing in Nigeria. For over four years now this world number two brewer has been trying to open shop in Nigeria.
Beer sales in developed markets, according to industry sources, are losing fizz, so SABMiller is looking to the relatively untapped African market to help drive future growth. But with an estimated 315 million Africans living on less than $1 (N146.32) a day—roughly the same cost as a bottle of beer—commercial brews such as SABMiller’s Peroni and Miller Genuine Draft are beyond the reach of vast swathes of the population.
Low-income consumers have traditionally made home-brewed hooch from local ingredients that range from bananas and watermelons to root vegetables. In Nigeria, for instance, we have local beers called ‘Burukutu’ and ‘Pito’. Other variants which fall into the ‘hot drink’ group are ‘Shepee’ and ‘Aburo’.
Sometimes the ingredients aren’t quite so healthy: Reports have it that in Kenya, for instance, there have been a number of fatalities after home brewers added methanol and battery acid to give their brews a kick. With no regulation of this so-called informal beer market, drinkers “can be taking their life in their hands,” says Gerry van den Houten, supply chain and enterprise development director for SABMiller Africa.
There are common cases of local brewers in Nigeria adding such elements to their brew to achieve intoxicating levels. Such device is common with brewers of ‘Ogogoro’, ‘Shepee’ and ‘Pito’.
But Michiel Herkemij, the boss of Nigeria’s leading brewer, NB, does not think cheap beer will make it in Nigeria. Said he: “I do not know many Nigerians who like cheap things. I think what they are trying to do is to copy their strategy for Eastern Africa which is clearly a strategy that works for that part of the world. This home brew beer is a huge business. They tried it there with a locally produced sorghum. The sorghum they have in East Africa is different from the one we have here. So if they are planning to produce cheap beer with that I do not see Nigerians going for cheap beer. The sorghum we have here is totally different from the one we have in East Africa. It doesn’t allow itself to be brought down, to be stepped down to the level you are talking about.  
“And if you are talking about indigenous beer, all our brands here are indigenous beer. We produce locally, we use local ingredients. What we do is to produce high quality beer with local ingredients against affordable prices. I won’t go into the market and make promises about cheap beer because at the end of the day I know Nigerians want something that is good.”
For him, SABMiller is welcome. “The more the competition, the better, let us be very clear about this. I think Nigerian Breweries is very well placed to withstand any shock. Nigerian Breweries is a market leader that has been on ground for more than 63 years. It is a company that has been improving itself in all the brands, in all the segments. I am not saying that we are perfect. We have to wake up and make sure we remain the best in the market.”
For Guinness Nigeria plc, the market is big enough for all players. “SABMiller is therefore welcome into the Nigerian market,” said the company’s communication manager, Kingsley Uranta. “The market is big enough for everybody but we have strong brands that we are proud of, that we know can withstand any competition, and we have a robust customer loyalty”.
Thus, like Nigerian Breweries, Guinness seem to be losing no sleep over SABMiller’s entry into the Nigerian market with the cheap beer strategy.
Hoping to tap into the informal market, SABMiller is embarking on a new strategy to make beer more affordable. The largest brewer on the African continent with operations in 14 countries, SABMiller already has around 45 indigenous African brands, ranging from the more affordable Chibuku Shake Shake in Malawi and Eagle in Uganda, Tanzania, and Zimbabwe to such premium brands as Nile Special and Mosi. Now the company plans to create even more affordable brews using locally sourced ingredients such as cassava—a root vegetable that yields a rich starch—in place of more expensive imported alternatives such as maize.
SABMiller’s African strategy may see their two Nigerian acquisitions - Pabod Breweries and Standard Breweries - brewing well improved ‘Burukutu’ and ‘Pito’ and perhaps other local brands in Nigeria. This looks very feasible, what with Nigeria being the largest producer of cassava in the world with over 40 million metric tonnes per annum.
“It is an entirely logical move, given that a large segment of the population in Africa may not be able to afford commercially brewed beers as often as they’d like,” says Kim Slater, director of consulting at beverage market research firm Canadean in Basingstoke, Britain.
SABMiller estimates that the home brew market is worth more than $3 billion in African countries where it currently operates, amounting to a volume potentially four times greater than the beer maker’s current sales there. “There is an enormous informal alcohol market in Africa ,” says van den Houten. “We hope to access much of that market by producing a commercially brewed beer at 50 per cent to 60 per cent of the cost of standard lager by using locally sourced ingredients.”
SABMiller, which was known as South African Breweries prior to its 2002 acquisition of Milwaukee-based Miller, now gets 35 percent of its overall profits from Africa, compared with just four percent for rival Diageo (DEO). 
According to Trevor Stirling, research analyst for European beverages at Sanford C. Bernstein (AB) in London, the four main international brewers currently control nearly 90 percent of the African market: SABMiller has a 43 percent share vs. 19 percent for Heineken, 16 percent for French brewer Castel Group (in which SABMiller owns a 20 percent stake), and 12 percent for Diageo. Stirling reckons that a move toward local sourcing is on each company’s agenda.
SABMiller has been eyeing, for many years, the beer market in Nigeria but has so far missed out on entering Africa’s second largest beer market which is dominated by Nigerian Breweries (which has Heineken as technical partner and leading stakeholder), and Guinness Nigeria.
Guinness Nigeria’s contribution to global revenue, volume and margins is at record levels. So are Nigerian Breweries’ Star and Gulder in the Heineken group results. It is believed that the battle for market share, consumer loyalty and distribution channels will become one of the most fascinating in Nigeria’s fast moving consumer goods space.
Established by the Rivers State government, Pabod Breweries started production in 1982. From 1983 to 1985, sales of the company rose to over three million cartons of Grand Beer and Grand Malt per annum. The company experienced a major drawback when in 1986 a government policy, the Structural Adjustment Programme (SAP) had an adverse effect on the importation of raw materials for the breweries which depended heavily on foreign raw materials. In addition, lack of proper management and corruption resulted in a closure of the brewery.
Pabod Breweries stayed dormant for many years before German brewing consultancy, Brewtech, re-started the brewery about one year ago with the help of Nigeria’s Rivers State government.
The venture was temporarily halted when national competitor, Nigerian Breweries, took Pabod to court on the claim that Pabod’s customised beer bottle looked like NB’s Star bottle. On 30 June, 2008 Pabod won the case in court but NBL appealed the decision. The case is still pending Nigeria, with a population of about 140 million, is Africa’s most populous country and the continent’s third largest economy. Oil dominates the economy, accounting for about 80 percent of Federal Government revenues, and 95 percent of foreign exchange earnings. Despite the poverty of the population, the size of the market makes it very attractive to investors.
SABMiller was founded in South Africa in 1895 as South African Breweries (SAB). The business operations were mainly limited to southern Africa, where it had established a dominant position in the market, until 1990 when it began investing in Europe. SABMiller has grown from its original South African base into a global company with operations in both developed markets and in emerging economies such as Eastern Europe, China and India.


Related News