Beer Brewing Company in Nigeria

Understanding Emerging Markets - Africa

Tarini E, DM15163

Table of Contents
INTRODUCTION

FMCG SECTOR IN AFRICA

BEVERAGES
BEER
SOFT DRINKS

3
3
4

KEY DRIVERS FOR FMCG IN AFRICA

MARKET SIZE
MARKET CONCENTRATION
RELATED INDUSTRIES
SPENDING POWER
BUYING HABITS

4
5
6
7
8

WHY NIGERIA

BEER

STRATEGIES

10

CONSUMERS SHOULD BE ABLE TO IDENTIFY WITH THE BRAND

REGIONAL BREWS
APPEAL TO THE YOUTH
VALUE AND AFFORDABILITY
LOCAL IDENTITY

10
10
10
10
10

MARKET ENTRY PLAN

10

PROPOSED PLAN

11

CHALLENGES

12

Starting a new Business BEER BREWING

COMPANY IN NIGERIA
Introduction
Africa is an emerging market that companies should not overlook. Its sheer size
is definitely worth the attention but the country offers much more than real
estate alone for sure.
Rapidly improving infrastructure, income levels and business environment will
drive the growth of Africas consumer market. Consumer spending in Africa is
also projected to increase to $1 trillion , 2020 according to the Euromonitor
report.
New companies will however have to modify their strategies as well as their
expectations when they want to enter a continent like Africa. Infrastructure
readiness and logistics unreliability are some of the important issues.

FMCG Sector in Africa

The consumer packaged goods or the Fast moving consumer is one of the worlds
largest industries. There is significant scope for the FMCG sector to expand in
Africa. Sub Saharan Africa still has food and other necessities dominating the
consumer budgets. Thus the FMCG sector undoubtedly has a large market to
cater for.

Beverages
Africa is becoming increasingly attractive for the Beer industry. Positive
demographic developments, increasing disposable incomes, large populations
and increasing urbanization improve the market potential in this largely
underdeveloped industry.

Beer
Saturation of beer markets in most of the developed countries and other
emerging economies is another major reason for the attractiveness of beer
industry in Africa.
There is a concentrated effort by governments across the continent to clamp
down the consumption of illegal alcohol because of the associated health risks
and also the foregone tax revenue.
Beer consumption is expected to increase with increase in wealth. There is also a
huge opportunity to trade up consumers into the branded Beer sector from
informal segment and home brews.

Companies such as SABMiler, Diageo, Castel and Heinkein have generated

interests in the African brewers already. This is helping in industry consolidation
and operating efficiency and corporate governance ae seeing an improvement.
11% of entire Nigerian Stock Exchange s total arket capitalization belongs to
Nigerian breweries.
African countries produce crops that are used as raw materials for beer. These
crops are generally barley, sorghum, cassava and maize. SABMiler in 2013
followed a suit in 2013 by introducing the Eagle Lager, the first Cassava based
beer of the company in Ghana. The success of these beers can be attributed to tax
incentives. Locally grown cassava has now grown into a cash crop.

Soft Drinks
Soft drinks do not fall into necessity category. This is one of the major reasons
for this industry to suffer sharp cut in spending during tough times. Consumers
also differentiate largely based on price.
Poor quality of tap water in Africa is another reason why people prefer bottled
water and soft drinks. This gives access to a potentially massive market in Africa.
The demand for juices and bottled water in expected to increase as income levels
increase and consumers become increasingly health conscious. There is also a
definite opportunity for alcohol free soft drinks as the economy formalises.
Development of tourism and retail will also contribute to the soft drinks market
to a large extent.
Carbonated drinks dominate the industry but other categories are slowly
catching up in the recent years, especially bottled water. Popularity of drinks
containing minerals and vitamins is increasing with consumers becoming more
and more health conscious with time.

Key Drivers for FMCG in Africa

Market Size

Large market is crucial for FMCG companies as they operate on low margins.
Volume plays an important role. Despite having a huge market potential, Africa is
underserved which is evident from the below graphs.

Nigerias population is precisely the sum of next two most populated countries in
the continent.

Market Concentration
Another important factor to be considered is the density of population. FMCG
companies need consumers to purchase products on daily basis. This
necessitates their operation in a local market with large enough size. The UN
expects around 93 agglomerations by 2025 in Africa. Nigeria accounts for about
a quarter of this.

Related Industries
Manufacturing sector as well as the agricultural sector plays a key role in a
countrys FMCG sector. It is very important to have a predictable distribution
system.
Distribution channels are week in Africa and hence many companies opt for
vertical integration. Some of the crucial issues that m FMCG companies need to
consider before entering Africa are the quality of manufacturing, strength of
agriculture, infrastructure quality.

Spending Power
Per capita income is not an important factor for FMCG companies as the products
are necessary products. The trend of per capita income is however still
important so that one can decide the types of products that can be offered in a
specific market. It is important to benefit from shifts in consumer spending
patterns as they move up in the income chain. Thus a high growth market is
preferable.

Buying Habits
All FMCGs are similar in categories and thus retailers push brands on basis of
price.
It becomes very important for companies to thus sell their brand and install a
clear preference among consumers. Only this can help companies maintain
market share. Some of the key strategies to maintain the market share are
loyalty programs, advertising, promotions and enhancing consumer shopping
experience as well as offering products in different packages to make products
more affordable and adopting to the local needs.
Notable example here is the Coca Cola and Pepsi products. They taste similar and
satisfy the same need but consumers have their clear preference.

Why NIGERIA
The reasons for me to choose Nigeria are key drivers such as large arket size,
youthful population and urbanization.
Informal trade dominates the retail sector in Nigeria. The entry of super markets
and also the increase in number of shopping centres are however changing this
scenario. Majority of the population consumes unprocessed or semi processed
foodstuff. The changing trend in terms of demographics, purchasing power,
consumer preference and lifestyle is however increasing the demand for a wide
range of products.
Shop and Spar stores, Artee Groups Park, and South Africas Shoprite are some
of the most important supermarkets in Nigeria.
Nigerias biggest online supermarket is Gloo.ng and it offers free same day
delivery and also COD option. This appeals to consumers as it saves their time,
and also overcomes the problem of limited formal retail outlets in the country.
There has been a sharp take off of the E-commerce in Nigeria.
Wide agricultural reforms are ongoing in the agriculatural sector of Nigeria.
These are improved distribution of fertilisers, import restrictions so that the
local production gets a boost, removal of import duties on agricultural
equipment, and better access of credit to farmers.

Beer
Africas largest alcohol consumer is Nigeria. The country accounts for about 38%
of the continents formal alcohol market. The countrys beer industry has evolved
into an oligopoly from a duopoly. Heineken commands 70% market share. It has
two subsidiaries - Consolidated Breweries (10%), Nigerian Breweries (61%)
SABMiller is the new entrant to the market and shown strong growth.
The Nigerian beer industry is presently going through a tough time at present,
despite the strong long-term outlook. This is mainly due to distribution
pressures because of security concerns and increase in the cost of living.

Nigerian beer industry has contracted by almost 10% between January and
September of 2013 as per the research by Financial Derivatives Company, a
Demand for mainstream and premium brands is showing a declining trend
benefiting the lower priced brands.
There seems to be a large market at the very high and at the very low end as
indicated by the prominence of economy and premium brands. There is
definitely a missing middle sector.
It is expected that the Nigerian consumers will remain relatively squeezed in the
short term.

Strategies
Consumers should be able to identify with the brand
The beer company should use Nigerians in all communication related to the
brand. It is extremely important for Africans to identify with the brand.

Regional brews
Develop regional brews to suit the regional tastes. Brews can be made of maize,
sorghum, cassava etc based on the preference of consumers in the market.

Appeal to the youth

Appealing to the youth is very important, as it's a huge and growing population.
Targeting the youth ensures long term success. They are increasingly urban, well
connected with the internet, brand conscious and use social media extensively.

Value and affordability

It does not mean that the beer has to be cheap. The framework should be such
that consumers can afford the beer but there is no compromise on quality.
The focus should be on the following things:
1. Packaging and sizing
2. Key price points
3. Good Better Best and value performance premium products

Local identity
Use symbolism to give local identity
The names have to be larger than life as like by Nigerians.
Use emotional content

Market Entry Plan

Proposed Plan
Take a slice of the market local production and sell it on to small traders who are
hard to reach otherwise.
Acquire a rundown brewery and later build a new plant .
Increase capacity to slake the ever growig thirst of the locals

Look for fresh territories to conquer.

This will be a riskier gambit when compared to buying rundown breweries.
Scale will be important to overcome the distribution costs.

Challenges
Delivery of low value but bulky product to remote areas.
High fixed costs in building a new brewery in Africa.
Power and water treatment costs add to the price enormosyly. An entrant will
have to sell a lot to break even.
Head on clash with rivals will have to avoided.
People in Nigeria work for 2 6 hours to buy beer as compared to 16 mins for
Americans