March 14, 2019

Pocket adjustments, new preferences

Today we turn our attention to the food, beverage and tobacco segment. Over the past eight quarters, it has been the chief contributor to Nigeria’s manufacturing sector. In 2018 it accounted for 45% of total manufacturing GDP and grew by 2.9% y/y. The average Nigerian spends over 40% of monthly earnings on food and beverages, and as such this segment tracks consumer spending patterns. Given that the squeeze on consumer pockets is yet to fully recover, the breweries have had to adjust product placements to protect and/or grow market share.

  • Based on January’s inflation report, food and non-alcoholic beverage prices rose by 13.5% y/y while alcoholic beverages (as well as tobacco) prices rose by 10.3% y/y.
  • The strain on household wallets continues to translate into an increase in down-trading to much cheaper brands. Local brewers are gradually focusing on the value-for-money market. For instance, Guinness Nigeria appears to be gaining market share through Satzerbrau (its main value brand). Nigerian Breweries (an arm of Heineken) has a similar product in its value category.
  • The Nigeria Customs Service operates an import prohibition list which includes imported beer (bottled, canned or packed). This should encourage domestic production, subject to smuggling. However, we note that the beverage segment (mainly beer) has a relatively active export profile. Its exports in 2018 are estimated at N8.2bn (US$23m).
  • GDP, food, beverage and tobacco growth (% chg y/y)

    Pocket adjustments, new preferences

    Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research
  • Although its introduction may not happen until June, the proposed increase in the national minimum wage should provide some boost to spending. This bodes well for private consumption spending and by extension the brewery segment.
  • As at yesterday, the market capitalisation of the brewery industry on the NSE was N577bn, representing 5% of the total.