Guinness Nigeria stakes its future on low cost beer

Guinness Nigeria Plc, said it plans to broaden its participation in the value segment of the beer market as part of its strategy to return to profitability.

The maker of Guinness Extra Stout made this known in a rights Issue prospectus it released to shareholders in July. The company is seeking to raise N39.7bn ($109m) to enable it optimize its capital structure and reduce outstanding debt. The firm expects subscription to the rights issue and payment of debt obligation will be completed by the fourth quarter of 2017.

The brewer has seen its financial performance decline over the last year, with a N2 billion net loss in fiscal 2016 and a further N4.7bn loss for the six months ended 31 December 2016.

To return to profitability, the firm said it has increased local sourcing of raw materials from 44% in 2015 to 70% as of June 2016, with plans to reach 80% in the medium term.

Other steps taken include deepening partnerships with local distributors, reducing prices to grow volumes and gain market share, improving operational efficiencies and broadening its product portfolio to meet shifting consumer preferences, reduction of waste in production and reorganisation of its workforce.

The company estimates its capacity utilization for beer and spirits is 54% and 41% respectively.

Guinness Nigeria reported a 6% revenue growth in the first quarter of 2017, helped by a surge in spirits sales which now contributes 15% of overall sales and is expected to grow between 20% and 25% over the medium to long term.

The brewer notes that there has been a marked shift by consumers away from premium and mainstream beer and malt brands, a traditional area of focus for the company to low cost or value brands due to the country’s economic challenges.

As a result, the company said it plans to deepen its participation in the value cost beer segment by increasing product offerings through research and innovation.

A robust portfolio in the value segment is necessary for revenue growth in light of the current economic climate,” the company said.

The firm adds that these products will be offered at competitive prices. The brewer notes that it is beginning to see the increased contribution to revenue by its value brands such as Dubic in fiscal 2016.

On the international front, Guinness Nigeria said it has entered into agreements with international distributors to export its drinks to the UK and South Africa. It sees the move as a means to generating much needed foreign exchange. It is also exporting to other Diageo subsidiaries in a number of African markets and is exploring the export of Guinness Stout and Orijin ready-to-drink to South Africa.

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