The Brewery Industry In Nigeria

The Brewery manufacture In NigeriaThe brewery persistence belongs to the manufacturing sector under the Nigerian Stock Exchange (This Day, 2011). It dates guts to everyplace six decades with the birth of the pi one and only(a)er company Nigerian Breweries in 1949 with of star larger beer, fol impressioned by Guinness Nigeria in 1962 with Guinness stout. The major products in the brewery manufacturing be beer, stout and non-alcoholic bedevils (Corporate Nigeria, 2010/2011). For the purpose of this paper, beer will be uptaked to inculpate lager and stout.The application experienced a boom in the mid-seventies due to the fledging oil application and rapidly increased from less than volt n 1970 to all over thirty by 1980 (Obot, 2000).The ownership of the firms in the industry ar either human beings or state-owned with or without exotic partnership. in that respect be challenges of high operational costs due to importation, expert-skilled labour, maintenance of machine ry and equipments. These challenges consider lead to the closure of quite a number of the low-toneder firms in the early 80s leaving only the large firms with strong monetary base..At present, there are thirteen brewery (Nigerian Custom Service, 2011) companies left with only quad listed under the Nigerian Stock Exchange (This Day, 2011).The industry is at the due date stage of its life cycle but still dust one of the striving industry in the Nigerian manufacturing sector. It has a direct meshing of over 30,000 force out and an indirect employment of over 300,000 thousand personnel as a result of the firms providing ancillary services to the industry (Equity explore report, 2006).Nigerian Breweries and Guinness Nigeria are the dickens major players in the industry with . Nigerian Breweries leading the commercialize with slightly 65% mart share eon Guinness Nigeria follows with about 25%. They some(prenominal) jazz economies of scale and have erect return on their inv estment (Corporate Nigeria, 2010/2011).Analyses of Macro-environmental factorsEvery industry is make believeed by factors in the environment in which they operate. These factors which they have no direct potency over, whitethorn either impact positively or negatively on the industry. The factors used for this digest are Political, Economic, Social and Technology.PoliticalThe Nigerian policy-making history after independence in 1960 has been characterized by a solicitation of military and civilian governments. The military regimes had adversely affected the real sector, an face was the drive out placed on importation of barley the raw square for production of beer, by the military government of Buhari in 1987 (Porter Phillips-Howard, 1994). However the historical twelve age of civilian government has witnessed relative stability in most parts of the countrified except for the restiveness in the Niger Delta region, which has dwindled the acress unsmooth oil tax income. It is expected that the on-going elections will successfully usher in a new civilian government that will further stabilize the principle and create an enabling environment that will attract foreign investors and hie the resuscitation of the real sector (Corporate Nigeria, 2010/2011).EconomicNigeria operates a mixed economy which encourages the co-existence of both the private sectors and the state in the market place. It is an emerging economy with authorization economic top executive given the abundant resources. The countrys economy is well modify along sectoral classification with the oil sector accounting for over 80% of its GDP, through crude oil export thereby making its revenue highly susceptible to the vagaries of the trends in the international market (Corporate Nigeria, 2010/2011).The economy is back up by a very resilient and strictly regulated financial system that has gone through several reforms within the past decade. fleck the exchange rate has been relativel y stable in the past two historic period, interest rates have been closely regulated by the profound Bank of Nigeria plot of ground efforts to bring inflation rate on a lower floor integrity digit has been elusive.Other factors that have contributed to the harsh economic climate in Nigeria are lack of power and inadequate infrastructure. The period among years 2000 and 2010 has witnessed the closure of more than 850 industries. However, with the trend of increase in the manufacturing GDP over the past years (i.e. 2008 3.6%, 2009 4.2%), it is expected that a stable terrain will go by to attract investors in years to come (Corporate Nigeria, 2010/2011).SocialNigeria with its cosmos of about 150 million is a huge potential market for investors. The country is the second largest beer market in Africa after South Africa. South Africa with a population of 47.9million according to 2007 statistical data, has a beer consumption per capita of 50 hectolitres while Nigeria has 10 hectoli tres per capita. Industry operators are of the view that the existing firms capacity are non enough to meet the demand of the market, and there is therefore manner for expansion (Momoh, 2009).Nigeria is a diverse country with over 250 ethnic groups. The population of the country gives a religious spread of Muslims(50%), Christians(40%) and indigenous religions(10%). The Muslims and Pentecostal Christians do not indulge in beer consumption due to their religious beliefs (Corporate Nigeria, 2010/2011)The supra notwithstanding, beer consumption remains a social activity in Nigeria and the bargain of the commodity has continued to increase from year to year..TechnologyThe brewery industry is highly capital intensive. This accounts for the reason why the ownership structure is either public and/or state-owned with/without foreign partnership. The engine room for the industry, spare parts and expert technicians are not available in country and therefore highly helpless on foreign ex change. Guinness for example has Diego of Ireland as its foreign partner (Trade Invest, 2009).The ban on importation of barley in 1987 necessitated the industry to settle for topical anesthetic shift of maize and sorghum as raw materials for its production. The resultant instal conversion to accommodate the new raw material input-mix cost Nigerian Brewery a whopping sum of cokemillion naira (Equity enquiry report, 2006).One of the major challenges cladding the industry is the maintenance of equipments and machinery. The players commit huge financial resources in engineering science and upgrades in order to remain competitive (Equity Research report, 2006).Analysis of Industry Competitiveness using Porter quintet ForcesIndustry competitiveness is give tongue to to determined by bargaining power of buyers, power of suppliers, flagellums of new competitors, threat of substitute products and rivalry among existing firms. The profitability of the industry is determined by these louvre Forces as they influence values, costs and required investment (Porter, 1985). negotiate Power of BuyersBuyers create demand in the market and their bargaining power would represent a strong competitive force if they have fitting bargaining leverage to influence and obtain terms concessions and new(prenominal) booming terms and conditions of sale (Thompson et al, 2010). In the case of the brewery industry, consumers are scattered crossways specific regions in the country. Some states in the Northern part of Nigeria do not permit the sale of alcoholic beverages due to religious beliefs.The footing elasticity demand for sales of brewery products is inelastic, an increase in price whitethorn not have a significant impact on demand. A decrease in consumer disposable income may have a small impact on demand, as buyers may go for cheaper brands or substitute products. The introduction of a new product into market that is not tie in to the brewery industry may compete with brewery products for consumer disposable income. The introduction of GSM service into the Nigerian market in 2003 created a serious competition for the brewery industry (Equity Research report, 2006).The industry has good distribution networks, in fact, they are the buyers in the industry as they control movement of the products from the producer to the retailers, and thus determine the price of the products to a certain extent. This unfortunately does not allow interaction betwixt the producers and the consumers, however the players in the industry especially the two big players endeavour to maintain contact with their consumers by advertisements, promotion of events and also sponsorships of various programmes and activities (Jernigan Obot, 2006). talk terms Power of SuppliersSuppliers in the industry involve distributors of raw materials, components and finished products. much(prenominal) components include bottles, crown corks, labels e.t.c. These services are outsourced be cause the Nigerian law does not permit the brewery firms to produce them (Equity Research report, 2006).There are more distributors and suppliers than existing brewery firms in existence. The raw materials and components being undifferentiated give the manufacturers the luxury to chose their suppliers at will (Equity Research report, 2006). Nigerian Breweries alone has about 147 distributors and wholesalers within the country (Famurewa Orekoya, 2008). However the distributors may pose a threat to the industry during industrial actions. terror of new EntrantsAccording to Porter, the threat of new entrants will affect the profitability of an industry (Porter, 1985) as the incumbents may be forced to put down their prices in order to discourage new entrants thereby reducing profitability. In the Nigerian Brewery industry, some factors which help to raise barrier to entry include capital requirements, legal costs, economies of scale, distribution networks (oppapers.com, 2011). Nigeria n Breweries and Guinness both have foreign technical partners who provide the exacted technical and financial assistance (Corporate Nigeria, 2010/2011). The other companies are mainly public or state owned and are localised within their region.There were no new entrant into the parentage, until 2009 when SABMiller a South African company came on stream with the learnedness of Peabody Breweries and stock(a) Breweries. SABMiller strategy in gaining part of the market share was to produce low cost beer for a segment of the market who could not afford the amplitude brand of the existing market. However Nigeria Breweries was already producing such through merge Breweries one of its subsidiary (Corporate Nigeria, 2010/2011).Threat of SubstituteThe availability of substitute may impact an industrys profitability as consumers may decide to switch to a substitute product (Boeing et al, 2008). In Nigeria the consumption of traditional drinks such as burukutu, palm wine and ogogoro has a cultural affinity among consumers in the verdant and urban areas. Other potential substitutes include alcoholic drinks such as wine, brandy, vodka and non alcoholic drinks such as malt, juice, soft and energy drinks. The alcoholic drinks are known to be consumed by a higher segment of the fellowship (Jernigan Obot, 2006), while the non-alcoholic drinks are to target the non-beer consuming religious groups.Beer however remains the beverage of choice as some studies carried out have shown its preponderating preference over other alcoholic beverages (Obot, 2000). Beer is known to account for 96% of alcoholic sales in Nigeria (Corporate Nigeria, 2010/2011).Intensity of Rivalry among existing firmsThis is a measure of the extent to which existing firms compete among each other for customers, this could be price and non-price ground (Boeing et al, 2008).In the industry as mentioned earlier, competition is between the two major players, however there are no price wars as the products are differentiated and price differences are insignificant. The industry produces 22 brands of lager and 4 brands of stout besides other non-alcoholic drinks, Nigerian Breweries dominates the market in the larger (Star) segment while Guinness dominates the stout (Guinness) segment (Corporate Nigeria, 2010/2011).For non-priced based competition, the two companies compete on product innovations, such as packaging, brand and advertisements. Consumers have witnessed innovation of packaging from bottle to can and sip-it packs.Summary of Five ForcesA summary of the five forces is hereby presented in the table below using key drivers and resultant effect on industry (Boeing et al, 2008). evade 1ForceKey driversEffectPower of buyersConcentration is high, no bargaining leverage down(p)Power of suppliersSuppliers more than ProducersLowThreat of substituteIncreased fruit in substitute industry highThreat of new EntrantHigh barrier to entryLowIntensity of rivalryTwo major competitorsModerate Overall analysisModerateSWOT AnalysisSWOT analysis will be used to measure an organizations strengths and falteringnesses, opportunities and threats in the industry on a quaternion cell chart (Dibb et al, 2006).Figure 1StrengthEconomies of scale hale financial baseExperienceHigh staff turn-overInflexible technologyCost ControlWeaknessOpportunityTechnology securities industry growthGood distribution networkGovt legislationContinued low toleranceFailure to capture mkt growthThreat(Dibbs et al, 2006)RecommendationsWith strength and opportunity, an organization in the industry can capitalize by expansion or acquisition of weaker firms. An organization with opportunity and internal weakness should watch the market easy and formulate a strategy to build on its weakness. A weak organization facing threat should take the strategic turn-around required, by exiting the business or allow itself to be taken over by a bigger firm. An organization with strength but facing threat should use it s strength to overcome its weakness (Dibb et al, 2006)Hirschmann Herfindahl Index (HHI)HHI is a measurement of the niggardliness of an industry. It is measured by squaring the sum of the market share within that industry . A HHI figure greater than 1800 imply an industry that is considerably knockout (Boeing et al, 2008).Table 2CompanyRevenue (2009)mMarket shareMarket share2Nigerian Breweries$1,10065%4,225Guinness Nigeria$ 587.725%625Others10%100Total4,950(Corporate Nigeria, 2010/2011).The HHI measure gives a figure of 4,950 which shows a highly difficult industry tending towards an oligopoly (Boeing et al, 2008).ConclusionThe brewery industry has proved to be a sustainable business in Nigeria with over six (6) decades of operation and having survived years of unstable polity, economic downturns and different government policy and reforms.The industry has been consistently dominated by Nigerian Breweries and Guinness and is distressingly tending towards oligopoly with the acquis ition of five existing breweries by Nigerian Breweries (allAfrica.com, 2011).Nigeria is still considered one of the least penetrated beer market in the world in terms of its demographic population of over 150million (allAfrica.com, 2011). More investors are definitely welcome, however such investors will need to commit huge capital outlay to build plants or seize existing firms and also create a strong distribution network in order to compete with the existing firms.Beer consumption is a win-win situation, Nigerians drink when they are happy and wish to celebrate, they also drink when they are sad or emotionally down. The brewery industry will therefore continue to enjoy a sustained growth in the country.