Brewery industry as driver of value-chain investments

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The value chain of any industry is a valuable tool to evaluate whether and how the competitive advantage is achieved, maintained and defended as well as how the economy is sustained. For the brewing sector, many industries depend on the sector for sustenance. From production to consumption, the brewery industry has a long supply chain and accounts for a larger contribution to the GDP than what is presently captured. With a yearly revenue exceeding N200 billion, innovative measures to salvage the over $2.7 billion brewery market from a downturn is dire. FEMI ADEKOYA examines the economic footprint of breweries in Nigeria’s manufacturing sector.

Notwithstanding societal concerns, the brewery industry has an alignment across several sectors while providing economies of scale to other industries as demand in the sector has direct impact on the capacity utilization and profitability of key value-chain providers.

For instance, the brewery industry, once an archetype of a multinational industry with significant pressure for local manufacturing and products adapted to local tastes, has gradually become a global industry, in which companies seek to realize cross-border standardization advantages, mainly by introducing global brands and by capitalizing on synergies in marketing and distribution.

However, the success stories of investments in the sector by MNC breweries are also challenged by global market developments. Sales have been affected by the stagnation in almost all traditional high-volume markets in the developed world with beer consumption declining recently in many of these markets. Notable growth in demand is evident in emerging economies, despite considerably lower profit margins.

With the Western beer consumption slowing down due to global downturn, Nigeria has the second largest beer market in Africa, after South Africa.

Indeed, studies show that with the largest population in Africa, a growing middle class and a large number of drinking-age consumers, the brewing multinationals may be jockeying for positions in a market that shows plenty of room for expansion.
Overview of the industry

The Nigerian breweries sector is a subsector of the food and beverages industry. The principal activities of brewery companies include the production, packaging and sales of alcoholic and malt beverages. Over the years, the sector has developed from a duopoly to a sector characterised by stiff competition, albeit with the dominance of two major players .

The sector has also evolved from purely bottling activities to a diversified industry involved in the production of canned drinks and the use of tetra packs. The industry had an estimated production capacity of 1.3 billion litres as at 2002.

Today, current production is about 1.1 billion litres with Nigerian Breweries and Guinness accounting for over 86 per cent of market share. This translates to a total revenue of over N128 billion, representing approximately one per cent of nominal GDP.

Also, SABMiller entered the Nigerian market in 2008, and through its strategic alliance with Castel, operates four breweries, with the most recent commissioned in Onitsha province in 2012.

Its breweries include International Breweries Plc (Ilesha), Pabod Breweries Ltd (Port Harcourt), Intafact Beverages Limited (Onitsha), Voltic Nigeria Ltd (Lagos) SABMiller’s portfolio of brands in Nigeria includes Hero Lager, Trophy Lager, Grand Lager, Trophy Lager, Castle Milk Stout, Castle Lager, Eagle and Redds.

The brewery industry currently employs more than 500,000 people and has about 50,000 distribution outlets in the country made up of wholesalers, hotels and clubs.

The industry is operating in a moderately risky environment even though analysts believe that the economic fundamentals are still strong.

Despite the dominance of Guinness and Nigerian Breweries in the Nigerian beer market, evidence has shown that well-run regional breweries are very successful.

Today, there are about 40,000 types of beer in the world in an industry that employs millions of people directly and indirectly.

However, the world of beer is still shrouded in many myths and misconceptions. “Beer gets a bad press, owning to many misconceptions. It is regularly blamed for many of society’s ills but the reality is that society as we know it is, in large part at least, only here because of it. So, next time anyone tells you how evil beer is, remind them that some of the best ideas come when you drink,” Femi Agboola, a Lagos-based marketing consultant.

For the players in the industry, a critical factor driving the beer market growth in Nigeria has been the huge population of the country put at over 170 million people who have a relatively reasonable income to spend on the product.

The Beer Economy
Breweries are a large manufacturing industry, but there is more to the story, because the product has a long supply chain and is retailed across almost every street in the country.

Form the direct impacts of the industry itself to the supply chain Impacts, where a lot of value-chain activities evolve to induced impacts (where employees of breweries and the supply chain spend their earned income on goods and services) and fiscal impacts, which attract governments the most considering the level of corporate taxes, income taxes of employees of breweries and supply chain income taxes of employees of breweries and supply chain industries product taxes, the economy of the brewery industry is larger than what is often captured in the GDP

Indeed, the correlation between beer consumption and income growth is positive and significant according to recent studies that put income per head in Nigeria at an average of 7.5 per cent according to World Bank data, while average growth of the beer market over the same period correspond to this at 11 per cent.

However, the last two years have witnessed a huge amount of pressure on consumer spending given the uncertainties in the economy, higher cost of living and security challenges which have all led to the drag in the volume growth among major players in the sector.

Similarly, the brewing industry continues to challenge (with facts and empirical evidence) the age-long myths, misconceptions and unfounded stereotypes held against beer as a safe, nutritious and healthy beverage drink.
Telling the positive side of the product

Human nutrition expert at the Department of Food Science and Technology, College of Food Sciences, Bells University of Technology, Ota, Prof. (Associate) Olu Malomo, explained that beyond any factor that threatens growth in the beer industry, it is apparent that the beer market in Nigeria is a vibrant one that offers value and much excitement to consumers.

He said: “The history of Beer shows that it is as old as one could possibly think dating as far back as 7,000 years ago. Beer brewing is scientific and the beer purity law was the basis of hygienic production of beer and the basis of the Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP).

“Beer production has contributed to social economic wellbeing of the country. Moderate consumption of beer is good for your health as beer consumption as brewed in Nigeria with gluten free cereals and rich in polyphenols will help in preventing celiac diseases. The populace needs to be well educated that moderate drinking of beer is beneficial to health after all”.

On his part, Professor of Human Nutrition, University of Ibadan, Tola Atinmo noted that the story of beer is not a new one but the positive side gets relatively untold.

According to him, people are basically uninformed about the positive aspects in Nigeria, though the country has many breweries and there are millions of beer drinkers keeping them in business.

He noted that the nutrient components of beer include carbohydrates, protein, water, fiber, vitamins and minerals.
Speaking on beer consumption and keeping a healthy lifestyle, he said: “Moderate consumption of beer can be part of a healthy lifestyle and has a relatively low calorie value compared to other alcoholic drinks. Moderate beer consumption does not lead to weight gain or abdominal fatness.

“The perception that drinking beer results in a ‘beer belly’ is not scientifically supported. Beers are generally a valuable source of polyphenols that lower the risk of cardiovascular diseases (CVD)and other chronic diseases due to their antioxidant properties. Polyphenols also have beneficial effects on blood pressure, lipids, insulin resistance and inflammatory biomarkers.

“Beer seems to play no role in the so-called ‘beer belly’ and is no potential obesogen, neither in men nor in women. Moderate alcohol consumption decreased fasting insulin and HbA1c concentrations. There is a lower risk of type 2 diabetes with moderate alcohol consumption due to improved insulin sensitivity or improved glycemic status.

“However, just like in other food items, beer also contains some materials that are injurious to health if they exceed certain levels.

The risks become acceptably low provided proper precautions are taken, such safety measures hinging around proper storage conditions in respect of moisture content and temperature.

“Excessive intake interferes with the function of the three main components of the male reproductive system: the hypothalamus, the anterior pituitary gland and the testes. The impact is impotence, infertility and reduced secondary sexual characteristics. Under no circumstance should minors, pregnant women, and breast-feeding women drink beer”.

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