Naira Devaluation To Affect Beer Prices–Afrinvest

Foreign exchange devaluation will affect pricing decisions of Breweries in Nigeria, Afrinvest has said.

The possible surge in the prices of the different brands across the Brewery companies comes in the wake of Nigeria’s fragile economy as a result of the Covid- 19 pandemic.

The Central Bank of Nigeria had moved to unify the Naira across the different markets as a result of foreign exchange pressure.

The CBN had last week updated the official rate of the local currency which confirmed  the devaluation of the Naira for the second time this year, from N360 to N379 per dollar.

“We now expect the response to FX devaluation and COVID-19 economic shocks to largely influence pricing decisions in the industry as consumers’ disposable income takes a hit,” the investment firm said.

Nigeria’s weak macroeconomic environment has over the years affected the  Brewery sector performance despite Nigeria’s over 200 million people. 

 Afrinvest said that the industry revenue grew by a compound annual growth rate of 5.1 per cent between 2017 and 2019 to N594.3bn from N511.8bn.

The  Nigerian brewery industry is still dominated by four major listed companies. They are  Nigerian Breweries Plc, International Breweries Plc, Guinness Nigeria Plc and Champion Breweries Plc. 

However, in its analysis, the firm focused on three of the four listed Brewers noting that NB maintained dominance as the largest Brewer with a coverage market share by revenue of 54.3 percent.

International Brewery trailed, accounting for 22.3 per cent and displacing Guiness as the second largest Brewer. Guiness now accounts for 22.1 per cent of coverage market share by revenue. 

The firm said, “Notwithstanding, the sector is not out of the woods yet as intense competition still presents limited scope for volume growth while the impact of regulation and higher cost pressures continue to weigh heavily on the overall performance. 

“Equally, macroeconomic fundamentals are little changed in favour of consumer spending in the face of persistent weak economic growth, currency pressures, and higher unemployment and inflation rates.”

According to the investment firm, the downturn was expected considering the poor state of consumer’s disposable income with a slow CAGR of 1.7 per cent in the last five years as well as the discretionary nature of alcohol consumption.

The company said Nigeria’s large population and strong demographic appeal were some of the key industry growth propellers.

The Lagos based firm said the sector was still faced with tough fiscal regulations including the June 2018 new  excise duty burden on beer, wines and spirits as well as the new Value Added Tax rate of 7.5 percent  implemented in February 2020. 

The investment firm noted that the external risk factors, mainly lower oil prices, are also constraints to foreign exchange capital flows for the importation of essential raw and packaging materials such as barley and aluminum cans. 

Afrivest added, “The insecurity issues in the Middle-belt region still persist, upsetting the supply of locally sourced raw materials such as rice and sorghum, thus threatening brewer’s backward integration strategies with added cost pressures. 

 
“Despite the brewers recent drive to boost local supply of raw materials they remain largely dependent on importation, which accounts for over 40 percent of raw material components on the average.   

“Given these changing dynamics and the limited room for pricing, Brewers have been compelled to actively seek to improve efficiency across the value chain through backward integration as well as to retain and increase market share through brand visibility.”

The firm said that the rise in competition has strongly restricted the scope for pricing actions to support margins due to cost pressures, fragile consumer spending and shifting consumer preferences.