When news broke of the merger of Nigerian Breweries (NB) and Consolidated Breweries (CB), the initial concern of stakeholders was that NB would muzzle competition and dominate the beer and malt sectors.
But that apprehension seems to have fizzled out as NB recently reassured at the Nigerian Stock Exchange (NSE) that it would enhance operational efficiency and maximise value for all investors in the new company.
Prior to the merger, the brewery industry had been under intense rivalry, particularly between two of the biggest competitors, NB and Guinness Nigeria.
NB boasts brands such as Heineken, STAR, Gulder, Legend Stout, Maltina, Fayrouz, Goldberg, Malta Gold, and the new ACE.
Guinness is renowned for its dark stout giant, Guinness Extra Stout, Guinness Extra Smooth, Harp, Orijin, Snapp, Smirnoff, and Malta Guinness.
Industry worth $10b
The brewery industry in Nigeria, estimated at over $10 billion, is dominated by the products of NB and Guinness. Some years ago, SABMiller, a South African brewery giant, entered Nigeria with Trophy lager, Hero, and Castle beer, which led to prediction of market stimulation.
But SABMiller has restricted it brands to the fringe market.
Brands from NB and Guinness continue to dominate the mainstream market which traverses Lagos, Port Harcourt, Abuja, and Kano. The brands include STAR, Heineken, Guinness Stout, Legend, Harp, and Snapp.
However, the increasing importance of the fringe market compels investment in that segment, even though products targeted at it are considered low-end in beer hierarchy.
Acknowledging the huge potential in a fringe market dominated by 33 Export Lager beer (now owned by NB), Champion from Uyo, and a few others, SABMiller introduced Hero to the South East and Trophy to the South West.
Guinness fought back with the introduction of Dubic, and NB acquired SONA Breweries and rolled out Goldberg and Williams.
Beer consumption high
Even as beer consumption slows down in Europe and America due to the global economic slump, the Nigerian beer industry continues to thrive. The country has the second largest beer market in Africa, after South Africa.
With the largest population in Africa, a growing middle class, and a large number of drinking-age consumers, brewing multinationals are jockeying for position in the Nigerian market that shows plenty of room for expansion.
Its beer market grew in value by 21.8 per cent in 2009, worth $2.7 billion. Since Nigerians consume just 10 litres of beer per head of population, the market has a big room for expansion.
Analysts project growth in value sales of 16.8 per cent in 2010, and average annual growth of 23.45 per cent between 2011 and 2014.
Drinking alcohol is a social activity in Nigeria, so 80 per cent of alcohol sales are on-trade. Beer is the most popular alcoholic drink in the country, making up about 96 per cent of all alcohol sales.
NB to take over
The move by NB to aggregate control of the industry began when it acquired SONA Breweries. Since then, it has made several other moves and established plants in key cities across Nigeria, as well as merged with CB.
Industry experts said the merger is to silence competition but NB insisted that it is to strengthen business and create wealth for stakeholders.
NB Chairman, Kola Jamodu, who led the company’s management to the NSE, said “this is expected to be achieved through major cost savings in the areas of interest expenses, distribution/administrative cost among other operating activities where duplication will be eliminated.
“Expenses such as annual general meetings, board of directors’ fees and communication expenses to shareholders will be reduced.”
Other major benefits of the merger include cost saving from the consolidation of supply and distribution networks as a result of improved operational efficiency of integrated operations.
Products of the merged companies will be manufactured more efficiently through combined operational capacities.
An industry expert, Ajani Oladele, said significant cost saving is targeted by distributing products and selling the enlarged product portfolio across the combined sales and distribution network of the enlarged company.
The new outfit is expected to extend market leadership, accelerate revenue growth, and expand profit capacity.
Impact
NB has 11 breweries spread across the nation and two malting plants. Its 19 brands include
• Lagers – Heineken, Star, Gulder, ‘33’ Export, Goldberg, More, Life.
• Stouts – Legend Extra stout, Turbo King, Williams Dark Ale.
• Non-alcoholic – Maltina, Amstel Malta, Malta Gold, Hi Malt, Maltex.
• Others – Fayrouz, Breezers, Ace Passion, Climax Energy.
Key battle area
The focus is the rural market, otherwise tagged fringe market. Stakeholders agree that the merger would increase competition in this segment.
Hero is loved in the South East and Trophy has eaten into the strong market share of 33 Export in the South West.
The merger would afford erstwhile CB brands, 33 Export and Hi-Malt, the war chest to compete since NB is known for giving its brands good marketing awareness.
But competitions in this market segment are restrategising marketing and communication to challenge incursion by NB.
Merger benefits
Merger provides the new company access to more customers. This is true if the individual entities had been successful in separate markets, as opposed to roughly equally competing in the same one.
The BBC reported that the merger of German automaker, Daimler Benz, with American automaker, Chrysler Corp, allowed the new company, Daimler Benz, to access markets in both Europe and North America.
A merged company can reduce many expenses. Budgets for things like marketing might be trimmed, while the new, larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities.
More often than not, a merger results in staff layoffs as positions become redundant in the new single entity. Merged companies can also share office space and eliminate duplicate manufacturing facilities.