Managing DirectorÂ and Chief Executive Officer ofÂ Guinness Nigeria Plc,Â Mr. Peter Ndegwa, spoke withÂ Chika Amanze-NwachukuÂ and Raheem Akingbolu, on how the manufacturing sector has been able to weather the storm during the economic downturn, especially the strategies put in place by the alcohol sub-sector by investing more in affordable beer categories, his companyâ€™s local production of spirits,Â as well as its CRS activities. Excerpts:
It’s no longer news that the country has been in recession since 2016. As a consumer goods company, how has this situation affected your business?
There’s no question that the state of the economy has affected our business and indeed it has affected many categories. You see significant down trading of a lot of categories. In our own category -alcohol, you see a lot of consumers going for lower priced brands. It has been happening in our sector, especially beer and spirit, but has accelerated in the past two years. Consumers are looking for quality but at a better price. More recently, we have seen affordable beer and spirit being the largest part of the market. Three years ago, the affordable category was about 30% of beer and today it’s closer to 60%. And I would say the same with spirit which is even bigger; more than three quarter of the category. The second aspect that has affected our business is the cost of doing business. That has impacted our margins. As devaluation and lack of liquidity has come through, that has meant accessing the input sourced locally as those imported are more expensive.
Like the saying goes, in every situation there would always be opportunities. For the manufacturing sector, has there been any opportunity for growth during this recession?
Sure, there are opportunities for growth. Our business in Guinness Nigeria has been primarily premium beer. We’ve been known for great brands such as Guinness Stout and Malta Guinness and wonderful innovation such as Orijin which took the market by storm. As the economy has been challenged, we have seen that as an opportunity to offer a broader portfolio to consumers. So, innovation has been the big area of focus for us. You’ve seen innovation in beer, spirit and also soft drinks. We launched innovation in all the three areas. And you see that a lot of these innovations are brands that are affordable. In beer, we have seen growth of beer such as Satzenbrau, in soft drinks, we’ve introduced Origin Zero and we’ve also started to see Dubic Malt growing and also for Malta Guinness, we’ve introduced Herbs Light which is identifying an opportunity where consumers are looking for lower sugar. We have expanded our participation into spirits; we have acquired distribution right from Diageo for international premium spirit such as Journey Walker and Smirnoff. Today, spirit contributes about 14% of our total business. Not only are we importing spirits from Scotland, we have set up local production facility within our Benin plant in Edo State to produce locally. So, we have started producing Smirnoff and Gordon’s Spark; local versions great quality international brands, bringing affordable brands. We have Smirnoff X1 and X1 chocolate. We have Gordonâ€™s Moringa, which Gordonâ€™s with infusion of Moringa. We’ve also acquired distribution right for United Spirits Limited (USL) which is the largest Indian spirit business. Brands such as McDowell’s are now produced locally in Benin. As part of responding to the economy, we have significantly increased our local content. Two years ago, we were sourcing 40% locally, today we are sourcing 70% and our intention is to increase it to 80% in the next two years.
Guinness Stout has always been top demand in the market. How have you been able to position the brand to key into the post -recession possibilities by taking advantage of the growth opportunities likely to be witnessed in the months ahead?
Guinness itself has been a household name in Nigeria. So we will always invest in Guinness to make it relevant to consumers. You would have seen that despite the fact that we have recession, we’ve continued to invest in Guinness. Guinness sponsors the viewership of English premiership through the DSTV contract to consumers and we know that Nigerians and Africans generally love football. The second one is the new innovation called Guinness African Special which is slightly lower alcohol, less bitterness and at an attractive price of N200. It has been in the market for about a year and we are driving it. The Guinness brand continues with resilience and innovation of extensions that are relevant to consumers. We also understand that consumers are looking for more choice that’s why we’ve launched these other brands.
What determines your response to change when it comes to campaign?
We are a consumer goods business, so we undertake a lot of research. Every time we introduce a campaign, we ask consumers how did it come across; how much they like it. So before we change a campaign, we have gotten feedback from consumers and we do research at our retail where consumers interact with the brand. We ask everyone who has seen the campaign, not just those who drink Guinness. To sum it up, feedbacks from consumers guide our changes for the future and we acknowledge that consumers also interact with many other brands, not just alcohol. So we have to keep our brands current.
Talking about ‘What is in Name’ campaign, can you please give us a background of how you came about this?
â€˜What’s in a Nameâ€™; Guinness has been a household name. It has been in the Nigerian market for 66 years, initially as an import brand and then we set up local production in Ikeja in 1962 and at the time, we also set up eye hospital in Kaduna, we then went to Benin and Aba. Over time, Guinness has evolved as consumers evolve. Today, we have evolved in all areas of our operations. The second aspect is that Guinness is now focusing on local sourcing. It has been known to be a good corporate citizen. We set up hospital in the 60s in Kaduna, then one in Lagos and Onitsha. We believe that going forward is sourcing locally. We source sorghum locally. That would mean that you have cassava or sorghum grown here, used in our brewery and beer is consumed here. So all the value remains in the country. That helps government to mitigate currency fluctuation, helps our operational cost as well. All these steps are being taken so that we can offer consumers products at the right price point. Local sourcing is not just us buying locally; it’s also about benefiting the farmers. We are already discussing with the community in Edo State about how we can grow cassava and process it into inputs we can use in the future for our business.
Still on ‘what is in a name’, can you let us into the various platform through which you want to explore this?
Performance is important for our shareholders, and not just that, part of our vision is to be most trusted and respected consumer business in Nigeria. To this end, we will explore various communications platforms to reach our target audience
Is it possible to have an idea of how much you want to invest in producing locally?
Our investment in Benin last year was Â£12 million, about N6billion. That’s the initial investment of starting to produce spirit in this market; we believe that there is a bigger market for spirit and we would continue to invest. In the past five years, in beer and soft drinks, we have invested â‚¬200 million within our plants in Lagos, Benin and Aba. We have also started to work with our partner in cassava farming in the middle belt and east and Sorghum farming in the north.
What is the guarantee that the spirit produced locally would compete favourably with what people get outside the country, in terms of quality?
Guinness has been known for quality in its 66 years of doing business in this market. We are part of an international business that adheres to high quality standard for beer. We are just expanding that to include spirit. And Diageo our parent company is known for spirit. So producing locally does not mean compromising quality at all. We have been producing Guinness for a very long time. What we are saying now is we are producing different brands but it’s the same business. We’ve set up state-of-art production facilities that produce spirits just like we have for beer. We understand quality in production and marketing. So what we produce will be the same quality you get anywhere else. We usually get benchmark in the Diageo business and Guinness Nigeria scores very high in terms of quality. On the BSA, our breweries have some of the newest facilities.
What is your installed capacity?
In beer, it’s about 7.5 million hectolitres (hundred litres).
Whatâ€™s your assessment of meeting this capacity?
We have some excess capacity in beer so we have headroom to grow beer. We don’t have enough capacity in spirit and that was why we installed the new facilities. Not just the equipment but also the quality standard we adhere to. As a process requirement, we hit the same standard that the factory in Scotland would be hitting because we are measured by the same standard.
What is your approach in consumer engagement now?
Our consumers are our biggest stakeholders. We have to remain relevant to them whether the economy is going well or not. At times like this, we believe we have to give our consumers more choice and that’s why we have launched more brands. We have launched more brands in the last two years than we did five years before. And we have to communicate these brands, so we have been spending more in brand building in the past two years than in the past. We grow the cost of promotion and advertisements and reduce the cost of production with local sourcing of materials.
What other CSR activities do you involve in?
There are three aspects of our CSR. I’ve talked about local raw materials. The second one is community project that gives back: water, health and education. We’ve been sponsoring and supporting three eye hospitals in Nigeria for the past 50 years: one in Lagos, Onisha and Kaduna; mostly in equipment donation. And these hospitals are attached to the university training colleges. In water, our intent is to bring water to about a million people in Africa. In Nigeria, we have undertaken 26 projects in the past 10 years across many states. The latest was in Cross River State. We also work with partners that can help us implement it. Basically what we do is we identify communities that are in need of water. We can charge them a very small amount so that the water equipment can be maintained. The intention here is not to dig boreholes and leave it to the community, but have water facility that is self-sustaining. The final one is we are aware that we work in alcohol, so we work with partners to create awareness that alcohol consumed in moderate quantity should be part of social life. So we provide education around alcohol to say that there is risk in too much consumption of it and also preach against drinking while driving.
Orijin was a game changer when it was introduced, but competitors also came up with brands to compete with it. How is origin bitters doing in the market now?
We have been known as innovation powerhouse. Orijin is one of the disruptive innovations that brought consumption of bitters and herbs to consumers in a contemporary and easy going way. We always know that when we introduce a brand like that, competition will come. So we always have to be ahead. That was why we introduced Orijin Zero. We have three offerings: Orijin bitters, Orijin Ready to Drink and Orijin Zero. Orijin bitters is still in growth. Orijin is still a very strong brand.
Guinness recorded huge loss last year which we learnt was the first in 30 years. How do you intent to reverse this trend?
For now I can’t talk about results as we are having our board meeting this week and we will be announcing our results later in the week. We have been known by shareholders as a company that delivers returns paying great dividends over time. As the economy has been challenged, we saw the impact of currency affecting our business. That was one of the reasons we recorded that kind of performance last year. Going forward, we are confident about our strategy, which is to broaden our portfolio so that we can have even up to double digit growth. We believe this business will get back to profitability. Also, we are in a period where the cost profile of the country is high. So, as we go into next year, we expect inflation to be lower. One of the other aspects that we spoke to investors about is the cost of Sorghum. As a result of drought in the country, the harvest was not as good, therefore the amount of Sorghum available wasn’t enough. That has now come through because the current harvest is much better.
Peter Ndegwa studied Economics at the University of Nairobi and holds an MBA from the London Business School. In 1992, he started his career at PwC in Kenya as a graduate before he was posted to the UK where he spent six years and rose through the ranks to become Associate Director within Corporate Finance and Strategy before leaving in 2004, to join EABL (a Diageo Company) as Strategy Director moving on to lead Sales and Finance functions in EABL. He was appointed the Managing Director/CEO, Guinness Nigeria Plc in August 2015 after spending four years as Managing Director / CEO of Guinness Ghana (Diageo company).