Published On: Thu, Oct 6th, 2016

Brewery sector not spared Nigeria economic tests

nigerias-brewery-sectorLAGOS, (CAJ News) – NIGERIA’S brewery sector is projected to continue its decline owing to the prevailing economic challenges battering the country.

Lack of access to foreign currency and persistent inflation and depreciation of the Naira have been cited as the major reasons behind the underperformance by the sector.

First Bank of Nigeria (FBN) said brewers had a challenging first half of 2016 and although it estimated the sector’s unit volume grew by mid-single digits year-on-year over this period, most of the growth was driven by the value segment.

Guinness Nigeria, International Breweries and Nigerian Breweries reported average sales growth of 5 percent y/y from January to June.

“For the mainstream category, beer consumption contracted in response to macro headwinds, including the persistent depreciation of the naira and inflationary pressures,” FBN stated.

The bank said the resulting squeeze on household wallets ultimately led to consumers down-trading to cheaper products and a re-categorisation of the beer market.

FBN noted the brewers were heavily dependent on imported raw materials.

Due to high production costs and the inability of manufacturers to successfully pass on cost increases to customers, Nigerian brewers reported an average gross margin contraction of -150 bps y/y during the January to June period.

Given the continued Naira depreciation, the high dependency of externally sourced raw materials and the inability of brewers to successfully pass on cost increases to consumers, the brewers are beginning to source domestically for raw materials.

While sorghum, a locally sourced crop, is already being substituted for barley, other locally sourced grains like cassava and packaging materials are being considered as substitutes.

FBN projects the challenges to continue.

“We rate all three brewers to under-perform.”

CAJ News

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