Africa: Multinational drinks companies battle for share in Africa’s biggest markets

As Nigeria plunged deeper into economic crisis last year, billboards popped up across Lagos, its largest city, promoting Johnnie Walker whisky along with a reassuring message: “Storms Never Last”.

The sentiment resonates as multinational drinks companies battle for share in Africa’s biggest markets amid the worst economic slowdown on the continent in more than two decades. And Diageo, owner of Johnnie Walker and the world’s largest distiller, will hope that its tagline rings true in Africa’s roughly $13bn beer market, the Financial Times reported on April 19.

Analysts say that despite the downturn sparked by low commodities prices, brewers are eager to push further into the region as traditional markets slow.

Africa is the world’s fastest-growing beer market, with research group Plato Logic forecasting volume growth of 4.5 per cent this year compared with 1.4 per cent per cent globally.

The continent remains key in the long term because of its fast-growing, urbanising and young population.

But with the African middle class expanding more slowly than anticipated, analysts say that brewers that have focused on selling cheaper brews are weathering the storm better than those which have stuck to their premium brands.

Against this backdrop, Heineken, the world’s second-largest brewer, officially opened a €150 mln brewery in Ivory Coast this month.

It follows the soft launch in November of its Ivoire beer — crafted for the local market, brewed with locally-grown rice and already enjoying popularity among drinkers in the cosmopolitan commercial capital of Abidjan.

“When you look at Ivory Coast’s very young population, its GDP growth as the top performing country in Africa — all of the parameters for success are in place there,” says Roland Pirmez, Heineken’s president for Africa, the Middle East and Eastern Europe, whose division contributed 15 per cent of the company’s revenues of €20.8 bln in 2016.

Since the 2014 price crash that sent the economies of Nigeria and other commodities-dependent African nations into freefall, foreign brewers’ fortunes have diverged.

As incomes have become squeezed, many premium brands, such as Diageo’s Guinness, have been pushed out of reach for tens of millions of people, even in aspirational, brand-conscious Nigeria. As a result, “low-cost beer is what people are drinking”, says Adedayo Ayeni, an analyst at Renaissance Capital.

Trevor Stirling, analyst at Bernstein, agrees. He says that each company’s fortunes are “very dependent on their country portfolio [of products]” but the one constant amid the downturn, is that “you have seen economy lager starting to boom”.

Mr Pirmez says that Heineken is responding by offering a range of beers “to meet different consumer needs” at different prices, helping organic revenues in Africa rise 3.5 per cent last year.

Olivier Nicolai, analyst at Morgan Stanley, says that Heineken has been “quicker to react to the downturn” in Africa than some of its competitors, adding: “Their thinking is that it’s better for consumer to stay within their portfolio, then at some point upgrade again.”

This approach contrasts with that of Diageo’s Guinness Nigeria business. It increased the price of its Harp lager to compensate for currency volatility. “Volumes fell off the shelf” from nearly 1m hectolitres a year before 2014 to less than 350,000 last year, says Mr Ayeni.

In a call with analysts last month, John O’Keefe, Diageo’s Africa president, acknowledged that in Nigeria, where inflation is near 18 per cent and growth in the beer market has slowed, “affordability [is] even more important to consumers” than previously.

Though Guinness Nigeria has reintroduced Satzenbrau, a value lager it had brewed decades ago, it was as a premium brand. It “misjudged the ability of consumers to cope [with the increase] and has paid the price”, Mr Ayeni says.

The group recorded organic net sales growth of 17 per cent for spirits in Africa last year, but organic net sales of beer declined 1 per cent.

SABMiller, the brewer whose roots are in South Africa, was acquired by Anheuser-Busch InBev last year for £79 bln as it looked to buy a foothold in Africa. SAB operates in 17 countries directly and another 21 through an association with French drinks group Castel.

It, too, has benefited from a focus on cheaper brews. “SAB has continued to do relatively well because people are trading down,” says Mr Stirling.

According to Plato, though SAB’s volume sales fell 1.2 per cent last year in South Africa, its biggest market, this was offset by a 4.7 per cent rise in Nigeria and a near 12 per cent increase in Zambia.

Having launched in Nigeria, Africa’s most populous country, in 2009, SAB had taken nearly 12 per cent of the market in 2015, compared with nearly 20 per cent for Diageo and almost 68 per cent for Heineken.

Heineken was “very proactive” in 2012, says Mr Ayeni, when beer sales began declining after fuel price rises. “It saw the change and really moved in the direction of ‘value’.”

Since then, it has acquired two breweries in Nigeria that specialise in the popular, less expensive brews Goldberg and 33 Export. In Ethiopia, Heineken produces three beers in addition to its flagship brand and in the Democratic Republic of Congo, it brews value brands, Primus and Turbo King.

But despite consumer demand for value, flagship premium brands are what the brewers really want to sell.

Robyn Chalmers, a spokesman for AB InBev in Africa, says that its local brands “resonate well” and will “continue to be a crucial part of our portfolio”.

But she adds that the brewer’s global brands Corona, Stella Artois and Budweiser, are a key driver of growth, saying: “As such, we have plans for them to play a larger role in Africa, initially in South Africa, in the near future.”

Heineken’s Mr Pirmez has similar aims as “the dream is to sell only Heineken” but, he says, “you have to think about the consumer”.

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