19 June 2024

Diageo exits Nigeria and sells stake in Guinness Nigeria

Nigeria | Diageo is pulling the plug on Nigeria and selling its stake in Guinness Nigeria, joining other multinationals who are exiting or reducing their exposure. The West African nation is facing its worst cost-of-living crisis in decades. The Singapore-based Tolaram Group agreed to buy Diageo’s 58 percent majority stake in stock market-listed Guinness Nigeria for USD 70 million, it was announced on 11 June.

Once the transaction is completed in 2025, Tolaram wants to initiate a mandatory takeover offer per rules from the Nigerian Exchange. However, Guinness Nigeria will remain a publicly listed company.

Both parties will enter into long-term licence and royalty agreements for the Guinness brand and locally manufactured RTDs and mainstream spirits brands.

Tolaram is less averse to risk

Western consumer groups, including Unilever, GSK and PZ Cussons, have retreated from Nigeria over the past year due to a chronic shortage of foreign exchange and a precipitous fall in the value of the naira, eroding profits. The naira has depreciated by nearly 70 percent against the dollar since 2016.

Tolaram, which has joint ventures with several leading consumer goods multinationals, is one of the largest consumer goods companies present in Africa, with combined investments of more than USD 1 billion in Nigeria, media say. The Tolaram Group’s origins can be traced to the textile trade of Khanchand Vaswani, a Sindhi businessman, who established a shop in Malang, Indonesia in 1948. The business subsequently expanded into textile manufacturing and distributing consumer goods. Tolaram relocated its headquarters to Singapore in 1975, and began exporting to Africa in the late 70s.

It is one of a growing number of largely non-western groups benefitting from the flight of their western competitors. Analysts say they provide the Nigerian market with cheaper alternatives and often have a higher appetite for risk.

In Nigeria, the three biggest breweries in terms of market share and revenue size are Nigerian Breweries (Heineken), International Breweries (AB-InBev), and Guinness Nigeria.

Is Diageo exiting beer in Africa?

Guinness Nigeria, home of the first Guinness brewery outside of the British Isles, was established in 1950. Nigeria contributed about USD 154 million of consolidated revenue to Diageo in the 2023 financial year and USD 16 million of EBIT, according to Bernstein. But since 2020, Guinness Nigeria has mostly been spilling red ink.

Bernstein analyst Trevor Stirling told the Financial Times newspaper that the deal also offered a resolution to the fact Diageo has been losing share in the mainstream beer market in Africa as it focused on Guinness and spirits. “Does this presage an eventual complete exit from beer in Africa?” he asked. Mr Stirling has a point: In 2022, Diageo sold both its Meta Abo brewery in Ethiopia and its unit Guinness Cameroon to France’s Castel.

Nigeria, with its population of 200 million people, was once paved with gold for brewers. But the country is experiencing its worst cost of living crisis in a generation, as inflation is at a three-decade high of 33.7 percent, media report.

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