Beer Monopoly

 

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Posted May 2019

Nigerian beer market│They had it so good. For decades, Nigeria’s cosy duopoly of Heineken and Diageo with their premium brands was run like a pharmacy. Brewers sold small volumes at high profits. However, the arrival of SABMiller and its value-for-money beer offerings, encouraged by the Nigerian currency’s decline, transformed the industry. As consumers traded down, the value segment ballooned and became the new mainstream. Overall price levels suffered and the beer profit pool shrank.

Sometimes it is hard not to despair of Nigeria. Nearly 60 years after independence, Africa’s most populous country continues to grapple with issues that are decades old and hamper growth: decrepit infrastructure, weak bureaucracy, corruption, poor education, widespread poverty and unemployment, not to mention insecurity. To many Africa doomsayers, this year’s presidential elections underlined again that Nigeria is a basket case. The vote, originally scheduled for 16 February 2019, had to be called off merely hours before it was meant to start and postponed by a week, because the authorities had been unable to get materials to polling stations on time. In the end, the incumbent, President Buhari secured a victory, although turnout was only 35 percent.

Relative calm and democracy at the federal level have tended to obscure that successive governments have failed to make Nigeria less oil-reliant. Oil still accounts for 90 percent of foreign-currency earnings and two-thirds of government income, reports say. Despite being an oil-dependent economy, efforts to clean up the state-owned Nigerian National Petroleum Corporation and stamp out corruption have largely been botched. Observers thought it bizarre that Mr Buhari’s predecessor, President Goodluck Jonathan, had the temerity to sack the central bank’s governor in 2014 for disclosing that USD 20 billion of oil revenue had gone “missing”.

Nigeria may have been mismanaged and its two-decades long economic boom squandered, but its brewing industry managed to thrive regardless. Until the arrival of SABMiller in 2009, the market was dominated by stock market-listed Nigerian Breweries and Guinness Nigeria, in which Heineken has a 56 percent stake, and drinks firm Diageo a 54 percent stake respectively. As the two controlled a combined market share of 90 percent, brewers of value brands, like France’s Groupe Castel and a few local operators, had to make do with the fringes of the market.

With competition virtually absent, Nigerian media liked to suspect that Heineken and Diageo had some sort of secret gentlemen’s agreement. Let’s just say it was “live and let live” because they had the segments divided among themselves: Nigerian Breweries led the Lager segment (60 percent of total volumes), Guinness the Stout segment (15 percent) and together they shared the Malt segment (25 percent). Malt beverages are a popular non-alcoholic adult soft drink. They are brewed much like beer and command similar prices, which is why they are usually added to overall beer sales.

Between 1999 and 2018 Lager and Stout sales tripled: from an estimated 5.5 million hl in 1999, to over 16 million hl in 2018. If you add perhaps 4 million hl of Malts, you will arrive at a total of 20 million hl beer in 2018 – as was forecasted by AB-InBev at its August 2018 investor seminar in Johannesburg.

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