The brewing industry is currently under immense cost pressure due to astronomical increases in the prices of local raw materials, undermining backward integration strategies.
Industry players said cost pressures for sorghum, wheat, and other products remain high due to rising inflation, uncertainty in the country’s agricultural belt, and other macroeconomic challenges.
Breweries had adopted backward integration strategies to save costs over imported goods due to exchange rate fluctuations. However, this strategy has now started to fail, with major breweries’ spending on local raw materials increasing by 113.6 percent annually to 188 billion naira at the end of the first quarter of 2024 (Q1’24) from 88 billion naira the previous (Q1’23). A mid-year industry report forecasts a further increase in Q2’24 with no easing expected this year.
Industry experts now fear that if the policy fails, there will be a reversion to heavy imports of raw materials, despite the currency benefits. They also believe that this development will be a further blow to industrialization and job creation in Nigeria.
Meanwhile, Journalists’ findings also revealed that the four largest brewers in Nigeria have turned to bank borrowings to shore up their cash flows amid rising cost pressures, raising the equivalent of N812,000 crore in borrowings in the first quarter of this year (Q1 24). This amount represents an almost 29% increase in borrowings compared to the previous quarter.
Financial information from the top four manufacturing companies listed on the Nigerian Stock Exchange (NGX) shows that their cost of financing (borrowing interest) in Q1 2024 increased by 191.2 percent to N125.5 billion from N43.1 billion in Q1 2024. The corresponding period is 2023 (Q1 2023).
The affected companies are Nigerian Breweries Plc, Guinness Nigeria Plc, International Breweries Plc, and Champion Breweries Plc.
Commenting on the challenges facing the manufacturing sector in general, Alhaji Aliko Dangote, Chairman of the Dangote Group, has sounded the alarm over the recent imposition of a 30% interest rate following the increase announced by the Central Bank of the country (CBN) in the key rate (MPR).
He said this is hurting businesses in the country and manufacturers will not be able to cope with it. He said: “However, as anyone can attest, our manufacturing industry has been in decline for many years and has largely failed to create the jobs it should have created for our hardworking youths. We have also increasingly lost our connection to our once strong agriculture and mining sectors which, if sustained, would have led to increased food security and energy independence.”
However, despite the rise in product prices, the industry recovery remains elusive due to increasing distribution costs and financial difficulties, resulting in major brewers incurring huge losses for both the full year 2023 and the first quarter of 2024.
Rising inflation, declining purchasing power, devaluation of the naira shortage of foreign currency, rising petrol prices, and electricity tariffs have forced the brewery industry to increase product prices to stay in business.
Industry analysts, however, are concerned that the price hikes imposed by brewers may further reduce demand for the same.
Meanwhile, breweries’ challenges have led to a combined loss after tax of N169.7 billion for the first quarter of 2024, a significant increase of 1,034 percent compared to N14.9 billion for the same quarter of 2023.
In the first quarter of 2024, the beer industry recorded a total foreign exchange loss of 272.9 billion naira, a staggering increase of 1,342 percent compared to the 18.
9 billion naira recorded in the first quarter of 2023.
This was primarily due to the impact of the devaluation of the naira on foreign exchange transactions, including commodities. Industry distribution costs also increased by 250.9 percent to N278.5 billion from N79.3 billion in the first quarter of 2023, while net financing costs increased by 616.1 percent to N191.2 billion from N22.7 billion in the first quarter of 2023. Increase in Product Prices According to the National Bureau of Statistics (NBS), Nigeria’s inflation rate stood at 33.95 in May this year. Companies in the brewing industry have responded by increasing the prices of their products.
Journalists’ research has revealed that leading breweries listed on the Nigerian Stock Exchange Limited (NGX) have directly or indirectly increased the prices of their products more than three times in a year and about twice in the first half of the year.
For example, International Breweries Inc. has raised the prices of its products twice this year. It was in April this year that the company announced the increase in product prices from June 1, 2024. The notice, signed by Hans Darfur, West Regional Manager, stated: “The current prices apply to all orders entered into the system before 11:59 pm on February 29, 2024.”
“For all invoices” issued after 00:00 am on March 1, 2024, they will be subject to the new prices, without exception.”
“The price of an invoice is determined solely by the date and time of the invoice, regardless of when it was issued or when the order was placed. We strongly recommend that all business partners follow this price chain in order to maximize profits while maintaining the excellent sales growth of the past months.”
Guinness announced in a statement titled “Price Increases by Guinness Nigeria Plc – Selected Brands” signed by the Commercial Director, Mr Olusanya Adesanya, that reads: will introduce price increases on select Stock Keeping Plan Units (SKUs) in the Beer and MSS categories.
“The new pricing structure will take effect from Wednesday, March 13, 2024, with further details to be announced thereafter,” a source close to the company said.
International Breweries has announced that it has increased the prices of the various products it offers in Nigeria. In a statement, the brewery said current market realities have necessitated a review of pricing across its portfolio, which has been done to better serve its customers.
The company’s head of sales, Olariye Abimbola, revealed that he is confident that the decision to review prices will benefit all partners.
Follow In response to a challenging operating environment, Nigerian Breweries has outlined plans for a company-wide restructuring as part of a strategic turnaround.
The letter, signed by Nigerian Breweries’ Human Resources Manager, Ms. Grace Omo-Lamai, and addressed to the leadership of the National Union of Food, Beverage and Tobacco Employees (NUFBTE) and Food, Beverage, and Tobacco Senior Staff (FOBTOB), reads:
“The proposed plan would see the temporary suspension of operations at two of the nine breweries. Taking into account this and the needs of employees, the company has invited the unions to discuss the impact of the proposed measures.
The Managing Director and CEO of Nigerian Breweries Ltd, Mr. Hans Essadi, commented: “We acknowledge and regret the impact that the suspension of brewery operations at the two affected locations will have on our employees and we are committed to minimizing the impact.”
We will exhaust all options available to us, including redeployment and redeployment of employees to our seven other breweries, and will ease the burden on employees as much as possible by providing comprehensive support and severance packages to all employees who are inevitably affected.
Also, Guinness Nigeria Plc recorded an after-tax loss of 56.4 billion naira in the first quarter of 2016 and a foreign exchange loss of 37 billion naira.”
