The Nigerian Beverage Industry will continue to experience growth amid uncertainties in the economy.
The economy is beset by a host of macro-economic headwinds, from drop in oil price to devaluation of the naira, rising inflation, a weakened consumer confidence and an insurgency in the North of the country that is going into its seventh year. With that said, we still feel that the beverage industry has a bright prospect. Some sectors will fair better than others.
Despite the uncertainties, beer sales are still expected to grow but at a modest rate.
According to BMI Research Group, a Fitch Group company, growth in premium beer will be flat as inflation and worsening confidence eats into consumer disposable income.
However, opportunity exists for a relatively underdeveloped value beer category to grow its market share. Value beer manufacturers like SAB Miller, which has steadily being building its presence in Nigeria, may reap the rewards as more consumers shift to cheaper brands.
The two dominant premium beer manufacturers – Nigerian Breweries (a Heineken subsidiary) and Guinness Nigeria (a Diageo subsidiary) will experience the effect of the economy the most on beer sales. BMI is forecasting a 0.5% year-on-year growth as against 2.0% that was initially forecasted.
CARBONATED SOFT DRINKS (CSDs)
Carbonated soft drinks (CSDs) are also forecasted to grow though at a modest rate due partly to inflation but more importantly to the fact that more Nigerians are now becoming aware of the health implications of drinking carbonated soft drinks. CSDs, as they are often called have severe negative effects on health over long period of time. They have been linked to increase in obesity, high blood pressure, heart diseases, and stroke, among others.
The growth drivers in this segment of the beverage industry are the growth in the population, 170 million by some estimates, and the rise in income levels over the last 10 years, improvement in marketing strategies implored by the bottlers, better distribution channels, introduction of new products and better packaging.
The carbonated soft drink industry in Nigeria is dominated by the world’s biggest soft drink manufacturers, Coca Cola with its Fanta, Sprite, and Schweppes brands and PepsiCo, with its Pepsi and Miranda brand.
In the last 10 years, a new competitor has emerged in this sector. La Casera is experiencing unprecedented growth because it is a non-cola carbonate soft drink and has a popular Apple flavour variant that appeals to Nigerian consumers.
Bottled Water Industry has seen growth of over 31% volume in the last 10 years.
The market is segmented into large multi-nationals, large corporate firms and hundreds, if not thousands of small and medium size enterprises (SMEs).
Analysts (BMI) expect the growth to reach 8.5 litres per capita in 2016. At that rate, it is expected that the sale of bottled water will overtake carbonates as the most widely consumed beverage by volume.
Growth drivers for the bottled water industry are the hot weather, growing population and health considerations. We anticipate the sector will become more segmented as competition grows and consumers preferences and taste evolve,
The Dairy segment has emerged the second largest in the food and beverage industry in Nigeria with estimated revenue of N347 billion in 2013 and a Compound Annual Growth Rate (CAGR) of 8 percent in the previous three years.
According to a report by Agusto & Co, a market research company, the milk segment constitutes 61 percent of the dairy industry turnover. The industry consists of six market segments – milk, yoghurt, cheese, ice cream, butter and infant formula.
The industry is led by a few dominant players – FrieslandCampina, with a 30 percent market share, followed by Promisador Nigeria Limited, Nestle Nigeria Plc and PZ Nutricima. Other players are Fan Milk, Chi Limited, UAC, Viju Industries and Shagalinku, among others. The market leaders have extensive national distributorship and strong foreign partnership and product demand.
The companies in this sector import approximately 75 percent of the milk they use in production because local supply cannot meet demand. Estimated demand in 2013 stood at 1.7 million tonnes, of which local supply was just 591,470 tonnes, leaving 1.2 million tonnes to be imported.
Milk imported by the dairy industry are repackaged and sold or reconstituted into liquid and other forms such as yoghurt and ice cream.
Because the industry is heavily import dependent, they face volatility in the global milk prices and are also exposed to exchange rate movements, which has been wreaking havoc on import dependent businesses in the country.
However, the industry’s growth prospects should remain strong due to strong demand for the products.
Key drivers in this segment is the large population of Nigeria, which is dominated by youths and children (0 – 24 years), and make up about 63 percent by some estimates. Other drivers are rapid urbanization, growth of retail stores, westernization, the hot climate and availability of products in smaller packaging.
The fruit juice market in Nigeria is driven by the large demographics, where youths (0 – 24 years) make up 63 percent of the population, rising urbanization, the hot climate, and shifting tastes are also factors.
National demand for fruit juices is estimated to be 550 million litres, while current supply is less than 25% of the demand.
Fruit Juice makers are finding ways to source raw ingredients locally after the government placed fruit juice on import prohibition list.
The top companies in this category are Dansa Foods, Chi Limited, Nigeria Bottling Company, Fumman Agricultural Products Limited and Vital Products Limited, among others. They all source their raw materials locally – such as grape, lime, lemon, paw-paw, guava, pineapple and mangoes.
However, there still remains a post-Harvest wastage of raw materials which stood at 50 percent in 2011 but has now being reduced to 25 percent due to increased commercial utilization.
There still exists opportunities for investors in this segment.
Investments in tropical fruit production will have a great multiplier effect on profits of intending investors and the Nigerian economy.
Popular brands of fruit juices in Nigeria include Frutta, Edge, Five Alive, Chivita, Fumman, Dansa, Fan Juice, Bobo, Chi Exotic and CWAY, etc.
Nigerian alcoholic beverage market (beer, wine and spirits) is valued at $2 billion and has maintained an annual growth rate of 6 percent since 2007. A breakdown of market share by segment show that beer has the lead at 55 percent; followed by spirits at 30 percent and wine at 15 percent.
Spirits have a long history in Nigeria as they have been widely consumed. However, wine consumption had been nonexistent until the 1990s.
In value terms, the Nigerian wine industry is estimated to reach US$370 million in 2015. Nigerian consumers hold a strong market for local and foreign branded wines with its large population of 170 million.
According to INSR reports, the Nigerian spirits market is valued at about $2.8 billion and growing.
The spirits market consisting of whiskey, brandy and vodka is estimated to be worth $2 billion and has increased by 6% per year since 2007.
Although a larger segment of the $2 billion market goes to cheaper local brands, imported brands account for $500 million of the spirit market.
The main driver is the increasing taste of middle class consumers, whose premium drink has been beer and champagne and the upper class.
It is said that about 13 million cases of whiskey are sold in the Nigerian market every year and this has been growing at an annual rate of 5 to 10% with a steady retention and trial rate.
Diageo has the largest market share of imported spirits with such brands as Johnnie Walker, Smirnoff Vodka and Baileys.
Moet Hennessey, owned by French luxury brand, Louis Vuitton, controls the premium Cognac market with its Hennessey Cognac labels.
In 2013 alone, Hennessey launched several of its newest Premium Cognac brands, SOP Nyx, the Glenmorangie Malt Scotch Whiskey and its limited collector’s edition bottle, Hennessey KYRIOS.
Hennessey’s Marketing Manager, Lere Awokoya said that the Hennessey Whiskey brand has experienced a 12 percent growth in the Nigerian market year-on-year since 2011.
New entrants like Ashkok Capoor’s United Spirits Limited (USL), manufacturers of McDowell Scottish Whiskey said that they have already sold nearly half a million in one year.
ENERGY & SPORTS DRINKS
Energy drinks have become very popular in Nigeria, especially among the youth. It is estimated that 66 percent of the consumers of energy drinks are between the ages of 13 ad 35 years of age with males being the dominant consumers at 65 percent of the market.
GaxoSmithKline Consumer Nigeria Plc dominates the sports and energy drinks market with Lucozade and Lucozade boost brands, which has 62 percent of the market.
However, health consciousness is becoming an increasing concern of consumers as energy drinks are said to contain high amounts of sugar and caffeine, which are linked to high blood pressure, type-two diabetes, kidney failure, seizures, among others.
However, the National Agency for Food and Drug Administration (NAFDAC) says that energy drinks registered by them has reduced amounts of caffeine.
Currently there are over 31 energy drinks brands in the Nigerian market.
Strong growth in energy drinks can be linked to the increasing growth of nightlife culture among the youth. Oftentimes, energy drinks are used as a mixture with other alcoholic beverages like spirits. In fact, energy drinks have been linked to the sales growth of spirits at bars and night clubs in the country.
Energy drinks are perceived to boost energy and might be an aphrodisiac. Energy drinks growth has also benefitted from urbanization and demographics of the population, more youths (0 – 24 yrs), 63 percent by some estimates.