SABMiller against the rest
It takes some daring to put big money behind a new brewery venture in Nigeria if you happen to be a latecomer to the market like SABMiller. The market is basically a cushy duopoly by Heineken and Diageo, both of whom have been active in Nigeria for decades. Heineken entered in 1946, Guinness in 1962. The two heavyweights have the market cornered: Heineken’s market share is about 70 percent, while Diageo’s is 25 percent.
In this respect, Nigeria is structured the way big brewers like it best: two major players only, which means that competitive wrangles can be kept to a minimum in order not to hurt profits.
When it comes to profits, Nigeria spells LOADSA MONEY. According to BRAUWELT International’s estimates, total beer profits came to about USD 670 million in EBIT in 2011, the bulk of which went into Heineken’s coffers, thanks to their high market share. Nomura, a bank, puts the figure much lower at only USD 450 million in total EBIT, but then it reckons that beer consumption was only 16 million hl.
According to the recent Barth Report, Nigeria’s beer consumption in 2011 was 19.5 million hl, which makes it Africa’s second highest behind South Africa’s. Given that the country has a population of 170 million people, per capita consumption is fairly low – under 10 litres. But as the map shows (see below), most of Nigeria’s beer consumption is concentrated in the southern half of the country where the predominantly non-Muslim population lives.
That’s why it was a non-brainer that SABMiller would build a new brewery in the southern state of Anambra. And SABMiller built big. The Onitsha brewery has an annual production capacity of 500,000 hl, says SABMiller. Add to that SABMiller’s Port Harcourt brewery, which was acquired in 2009 and has a capacity of 400,000 hl, plus the – perhaps – 800,000 hl former Castel brewery in Ilesha, whose management SABMiller took over in 2011, and the calculator reads 1.7 million hl of installed capacity.
To put this into perspective: Heineken’s installed brewing capacity is 18 million hl, Diageo’s is 6.5 million hl.
However, as we all know, installed capacity is one thing – sales volume is what really matters.
Although SABMiller does not say how much beer it produces in Nigeria, insiders estimate that sales volumes this year could be as high as 800,000 hl (300,000 hl in Port Harcourt and 500,000 hl in Ilesha).
Apologies for sounding arrogant, but that’s almost nothing, especially as SABMiller has been in the market for over three years and obtained the management of the successful Castel brewery more or less by chance thanks to a pan-African deal with Pierre Castel in 2011.
Perhaps SABMiller’s beer volumes will rise more quickly now that the Onitsha brewery has come on stream. But I daren’t make the same forecast for profits as Eisili Eigben, an analyst at Stanbic IBTC Bank, already warned last year that it could take SABMiller a decade, if not two decades, to reach a market share of 10 percent. SABMiller's current market share is about 4 percent.
Fortunately, the Nigerian beer market is forecasted to grow by about 6 percent annually. Surely, SABMiller’s future prospects would look far grimmer if the Nigerian market entered a phase of flat sales.
In retrospect, it seems that SABMiller recklessly underestimated the challenges it would face in Nigeria. Perhaps it thought it could break Heineken’s and Diageo’s stronghold over the country’s bars and clubs more easily and quickly. According to Mr Eigben, 80 percent of all beer in Nigeria is consumed in the on-premise.
Of course, if SABMiller were prepared to put a lot of money on bar owners’ tables, it might be able to persuade them to sell their beers instead of the competitions’. On the other hand, why should bar owners take the risk of serving a SABMiller beer brand to their customers that hardly anybody else seems to drink?
Incidentally, SABMiller’s new lager from the Onitsha brewery is called Hero Lager. How appropriate. It takes a real hero to go into battle in Nigeria’s beer market.
SABMiller is the number one brewer in Africa …
