Rumpus over Distell Acquisition

The announcement by Nigerian Breweries of the acquisition of Distell Wine and Spirits is generating conversations in the industry, given the competition in the market and the state of the economy, writes Raheem Akingbolu

With a projection of a market share growth of 16.79 per cent by 2024-2028, resulting in a market volume of $12.3 billion in 2028, Nigeria’s beer market has been rated one of the 10 fastest growing markets in the world. 

As in the game of football, where players make frantic efforts to score goals, things are happening fast in the country’s beer market as each of the players daily look for an opportunity to have competitive advantage.

Until 2011, the duel was well pronounced between Nigerian Breweries Plc and Guinness Nigeria. But since AB Inbev, one of the world’s top brewers, acquired majority share in the International Breweries Ilesa, manufacturers of Trophy Lager and also took control of the ownership of Hero, a popular brand in the Eastern market, the game has changed. Today, almost all the players have extended their frontiers through acquisition and brand extension into spirit and wine portfolios. 

For Nigerian Breweries, having battled the headwinds of the foreign exchange instability in the 2023 financial year that occasioned an unprecedented loss of N106 billion, tongues wagged about what plans the company has for recovery, and it did not waste time to unveil a road map to refloat the business and return it to profitability. 

Besides the approval obtained from its shareholders to raise N600 billion through rights issue, the company also announced a nearly concluded plan to diversify its portfolio with the acquisition of Distell Wine and Spirits, a South Africa-based company whose global footprints in the wine and spirits business is well known.

The move for the acquisition began in November 2021 with the acquisition of the South African giant by Heineken BV, the majority shareholder of Nigerian Breweries for $2.56 billion.

Distel’s Record

Those who wondered why Heineken paid such a hefty amount for a distillery may not have any knowledge of the track record of the company. An X-ray of its 2022 annual report shows a company that is not just a global player but a big earner. Its full year ended for June 2022 showed a sales volume of 823.9 million litres of its products, indicating that it stands quite strongly against global giants like Moët Hennessy Louis Vuitton, Diageo, Altria, Wuliangye Yibin, Pernod Ricard, and Brown-Forman.

Distell distilled an impressive N34.133 billion (N2.365 trillion) in revenue in the same year. In a year during which the biggest player in the sector posted revenue of N79.2 billion, Distell’s performance presents a decent report card that will enable analysts to project the impact that a company with the global network of Heineken would make in further penetrating the brand in Nigeria and other parts of the world.

Its sales volume, profits, and earnings per share all grew in double digits between 2022 and 2023, according to information on its annual report, and with the takeover of its business by Heineken the opportunity to grow its global presence, which accounted for only 8.8 percent of its revenue in 2022 has received the needed impetus.

The wine and spirits market in Nigeria is huge. With locally-produced brands holding their own against imported ones, experts have projected the market to record a cumulative average growth rate of approximately 11 percent between 2023 and 2027.

According to the founder and Director of Drinks Revolution Limited, Dr. Ikem Ugo,  the market will continue to experience remarkable growth that will accommodate new players, even as it will also increase the competition in the various segments that exist in the market.

Ugo, who is also the author of the book, Nigeria Wine and Spirits Market: Structure and Regulations, the growth will be driven by lifestyle changes that has drawn a swathe of the population to develop tastes for wines and spirits.

“There will continue to be significant growth in consumption, with substantial on-trade and off-trade developments that will impact the volume of trade. Whereas wine consumption has remained comparatively high in the key states in the southern region, there is a significant expectation of growth in other regions hitherto impeded by social, cultural, and other concerns,” he stated.

Whiskey Market Growth

Data on the wine and whiskey sector in Nigeria appear to be many and varied, but according to Statista, the market in Nigeria is valued at over $34.38 billion (N40.8 trillion). Disputable as this might sound, it presents a window through which analysts can view the opportunities available for the players, including new entrants like Nigerian Breweries.

In fairness, many of the brands produced by Distell Wine and Spirit have been available in the country before now. Brands such as Amarula Cream Liqueur, Crus Red Wine, and Bain’s whiskey are all available in the country. Drinks such as Savanna were at one time, quite popular in the Nigerian market, but had its growth impeded by distribution challenges. What the acquisition will do, therefore, is to add fillip to the marketing and distribution of these and other brands that have not become household names in the Nigerian market.

This is the leverage which Nigerian Breweries has, and will bring to bear on the success of its new portfolio, which will include the more popular and many other not-so-well-known Distell brands.

Ugo was optimistic that the fundamentals of Distell Wine and Spirits would combine with the distribution network of Nigerian Breweries to make a success of the acquisition.

“What Nigerian Breweries has going for it is the distribution network. In most of the places beer is consumed, and there are also fair levels of wine and spirits consumption in those places. These places are what we call HORECALs, that is Hotels, Restaurants, Canteens, and Lounges. Because they are traditional market players, Nigerian Breweries already have footprints in those places and key channels, and it is basically to reactivate those channels and exploit them to distribute and instigate consumption,” he said.

He added that Nigerian Breweries does not need to create a new supply chain but will need only to incentivise the existing channels to make its wine and whiskey brands top of mind.

“Because they have also been dealing traditionally with those channels, it will be easy for them to make deals by giving incentives and even do trade marketing within those channel networks. This gives them a big advantage, and more importantly, understanding that consumer preferences are shifting away from beer to spirit, makes it much easier now for them to close existing demand gaps,” Ugo further said.

Job Opportunities

But even if the company would exploit its existing supply chain to push the brands across the nooks and crannies of Nigeria, there will be the need for some specialist employees and support services providers to enable the successful execution of the project.

This is why experts have praised the acquisition as capable of triggering huge employment opportunities for Nigerians across the value chain.

On the challenge of “premiumisation” in the wine and spirits sector, he said Nigerian Breweries would survive even without playing in the premium segment because the sector is driven by volume rather than premium positioning.

“We are not sure at the moment if there are no premium brands in the assortment of drinks Distell has in its portfolio. I am aware of one or two premium wines and I am sure they also have some premium whiskey. But be that as it may, if you examine the market critically, the bulk of the sales are in the value-for-money segment. The premium market is just about 11 to 15 per cent at the best. The medium level is another, on its part, is 15 to 20 percent, but the volume, which is over 60 per cent is at the value-for-money segment and that is where those who extract the greatest value in the sector play,” the wine and spirits expert stated.

He emphasised that the deep roots Nigerian Breweries have in distribution give it an edge because they have the opportunity to be everywhere, in parks, in all jollity bars, and in neighbourhood stores and kiosks, a situation that confers on them greater advantage than the existing brands in the market.

Nigeria is currently experiencing a major shift in the consumption of whiskey. In the premium segment, the market is quite competitive, but it appears that the bottom of the pyramid might be where the real money is, what with the proliferation of herbal blends of whiskey, many of which are packaged as aphrodisiacs.

Any brand that wishes to win should not ignore this segment and that is why the recent re-launch of Nigerian Breweries’ Ace Roots, which was introduced in 2018 looks quite strategic.

Ace Roots may have been prepared to vie for its chunk of the value-for-money market share and with the other low-end brands that will come into the market with the added portfolio from Distell Wine and Spirits, the next full year might have the books of Nigerian breweries looking positively different.