- Diageo unit wants to boost exports to access foreign currency
- Nigerian drinkers shifting to lower-priced brands amid slump
Guinness Nigeria Plc plans to increase exports to improve sales and generate more foreign exchange as the country’s second-largest brewer battles to overcome an economic slump in its home market.
The unit of London-based Diageo Plc will consider selling Guinness stout and the herbal drink Orijin in South Africa to boost the proportion of beverages it sends to international markets, Chief Executive Officer Peter Ndegwa, 48, said in a Sept. 9 interview at the company’s office in Lagos, the commercial capital. That will help resolve the brewer’s shortage of foreign currency in Nigeria, which the beverage maker needs to pay for imported goods.
“With all the challenges we have had with foreign currency availability, we realize that export is a great opportunity to gain foreign exchange and stabilize,” Ndegwa said. “We have heard a lot of inquiries from South Africa. We are currently in the process of seeing how we can export some of those brands to the country.”
Heineken NV is also expanding in South Africa with the recent introduction of Sol Mexican lager, part of a plan to boost its market share in a country dominated by SABMiller Plc. Guinness Nigeria will also seek to export beer to target Africans living on other continents, Ndegwa said.
Generating foreign currency from exports would help Guinness Nigeria offset a scarcity of dollars in its home market caused partly by a slump in oil revenue, the country’s biggest earner. The economy is on track to shrink 1.8 percent this year, according to the International Monetary Fund. That would be Nigeria’s first full-year contraction since 1991, according to data from the nation’s statistics agency. Nestle Nigeria Plc, a unit of the world’s biggest food company, warned last month that a lack of foreign currency and the highest inflation in nearly 11 years would hurt profit margins.
Guinness Nigeria is seeing drinkers switch to cheaper beer brands such as Satzenbrau as disposable incomes decline, and is expanding its range of spirits to increase choice in its more affordable product range.
“We are focused on brands that are lower priced, by either improving distribution or improving awareness,” Ndegwa said. “We have spirit brands across all categories but the growth is mid-to-lower end.”
Nigeria’s July inflation rate of 17.1 percent, the highest since October 2005, has raised the cost of doing business, according to Ndegwa. Guinness Nigeria has worked toward increasing the amount of goods sourced locally in the past 18 months to make savings through the reduction of imports, a strategy that will also ease the need for foreign currency, he said. The brewer will invest 12 million pounds ($15.9 million) in a plant in Benin City, in the south of the country, to reduce spending on imports, the CEO said.
Earnings after tax fell 83 percent in the nine months through March, while revenue dropped 18 percent to 69.6 billion naira ($220 million). The shares are down 17 percent this year, compared with a 3.7 percent fall in the Nigerian Stock Exchange All Share Index.
Even as Guinness Nigeria battles the list of challenges, the company is committed to Africa’s most populous country and the CEO pledged to “weather the storm.”
There’s a lot of demand for “great brands offered by companies like ours,” Ndegwa said. “We see opportunities for growth, despite the fact that the economy doesn’t look as attractive.”