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The Brewery Industry In Nigerian Markets Business Essay

The brewery industry belongs to the fabrication sector under the Nigerian Stock Exchange ( This Day, 2011 ) . It dates back to over six decennaries with the birth of the innovator company ; Nigerian Breweries in 1949 with of star larger beer, followed by Guinness Nigeria in 1962 with Guinness stout. The major merchandises in the brewery industry are beer, stout and non-alcoholic drinks ( Corporate Nigeria, 2010/2011 ) . For the intent of this paper, beer will be used to imply lager and stout.

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The industry experienced a roar in the seventiess due to the fledging oil industry and quickly increased from less than five n 1970 to over 30 by 1980 ( Obot, 2000 ) .

The ownership of the houses in the industry are either public or state-owned with or without foreign partnership. There are challenges of high operational costs due to importing, expert-skilled labor, care of machinery and equipments. These challenges have lead to the closing of rather a figure of the smaller houses in the early 80s ‘ go forthing merely the big houses with strong fiscal base..

At present, there are 13 brewery ( Nigerian Custom Service, 2011 ) companies left with merely four listed under the Nigerian Stock Exchange ( This Day, 2011 ) .

The industry is at the adulthood phase of its life rhythm but still remains one of the endeavoring industry in the Nigerian fabrication sector. It has a direct employment of over 30,000 forces and an indirect employment of over 300,000 1000 forces as a consequence of the houses supplying accessory services to the industry ( Equity Research study, 2006 ) .

Nigerian Breweries and Guinness Nigeria are the two major participants in the industry with. Nigerian Breweries taking the market with approximately 65 % market portion while Guinness Nigeria follows with approximately 25 % . They both enjoy economic systems of graduated table and have good return on their investing ( Corporate Nigeria, 2010/2011 ) .

Analysiss of Macro-environmental factors

Every industry is affected by factors in the environment in which they operate. These factors which they have no direct control over, may either impact positively or negatively on the industry. The factors used for this analysis are Political, Economic, Social and Technology.

Political

The Nigerian political history after independency in 1960 has been characterized by a collection of military and civilian authoritiess. The military governments had adversely affected the existent sector, an illustration was the prohibition placed on importing of barley ; the natural stuff for production of beer, by the military authorities of Buhari in 1987 ( Porter & A ; Phillips-Howard, 1994 ) . However the past 12 old ages of civilian authorities has witnessed comparative stableness in most parts of the state except for the jitteriness in the Niger Delta part, which has dwindled the state ‘s rough oil gross. It is expected that the ongoing elections will successfully show in a new civilian authorities that will farther stabilise the civil order and make an enabling environment that will pull foreign investors and excite the resuscitation of the existent sector ( Corporate Nigeria, 2010/2011 ) .

Economic

Nigeria operates a assorted economic system which encourages the co-existence of both the private sectors and the province in the market topographic point. It is an emerging economic system with possible economic power given the abundant resources. The state ‘s economic system is good diversified along sectoral categorization with the oil sector accounting for over 80 % of its GDP, through rough oil export thereby doing its gross extremely susceptible to the vagaries of the tendencies in the international market ( Corporate Nigeria, 2010/2011 ) .

The economic system is supported by a really resilient and purely regulated fiscal system that has gone through several reforms within the past decennary. While the exchange rate has been comparatively stable in the past two old ages, involvement rates have been closely regulated by the Central Bank of Nigeria while attempts to convey rising prices rate below individual figure has been elusive.

Other factors that have contributed to the rough economic clime in Nigeria are deficiency of power and unequal substructure. The period between old ages 2000 and 2010 has witnessed the closing of more than 850 industries. However, with the tendency of addition in the fabrication GDP over the past old ages ( i.e. 2008: 3.6 % , 2009: 4.2 % ) , it is expected that a stable terrain will go on to pull investors in old ages to come ( Corporate Nigeria, 2010/2011 ) .

Social

Nigeria with its population of about 150 million is a immense potency market for investors. The state is the 2nd largest beer market in Africa after South Africa. South Africa with a population of 47.9million harmonizing to 2007 statistical informations, has a beer ingestion per capita of 50 hectoliters while Nigeria has 10 hectoliters per capita. Industry operators are of the position that the bing houses ‘ capacity are non plenty to run into the demand of the market, and there is therefore room for enlargement ( Momoh, 2009 ) .

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Nigeria is a diverse state with over 250 cultural groups. The population of the state gives a spiritual spread of Muslims ( 50 % ) , Christians ( 40 % ) and autochthonal faiths ( 10 % ) . The Muslims and Pentecostal Christians do non indulge in beer ingestion due to their spiritual beliefs ( Corporate Nigeria, 2010/2011 )

The above notwithstanding, beer ingestion remains a societal activity in Nigeria and the sale of the trade good has continued to increase from twelvemonth to year..

Technology

The brewery industry is extremely capital intensifier. This accounts for the ground why the ownership construction is either public and/or state-owned with/without foreign partnership. The engineering for the industry, trim parts and expert technicians are non available in state and hence extremely dependent on foreign exchange. Guinness for illustration has Diego of Ireland as its foreign spouse ( Trade Invest, 2009 ) .

The prohibition on importing of barley in 1987 necessitated the industry to settle for local replacement of corn and sorghum as natural stuffs for its production. The end point works transition to suit the new natural stuff input-mix cost Nigerian Brewery a humongous amount of 100million naira! ( Equity Research study, 2006 ) .

One of the major challenges confronting the industry is the care of equipments and machinery. The participants commit immense fiscal resources in engineering and ascents in order to stay competitory ( Equity Research study, 2006 ) .

Analysis of Industry Competitiveness utilizing Porter Five Forces

Industry fight is said to determined by dickering power of purchasers, power of providers, menaces of new rivals, menace of replacement merchandises and competition among existing houses. The profitableness of the industry is determined by these five Forces as they influence monetary values, costs and required investing ( Porter, 1985 ) .

Dickering Power of Buyers

Buyers create demand in the market and their bargaining power would stand for a strong competitory force if they have sufficient bargaining purchase to act upon and obtain monetary value grants and other favorable footings and conditions of sale ( Thompson et al, 2010 ) . In the instance of the brewery industry, consumers are scattered across specific parts in the state. Some provinces in the Northern portion of Nigeria do non allow the sale of alcoholic drinks due to spiritual beliefs.

The monetary value snap demand for gross revenues of brewery merchandises is inelastic, an addition in monetary value may non hold a important impact on demand. A lessening in consumer disposable income may hold a little impact on demand, as purchasers may travel for cheaper trade names or replacement merchandises. The debut of a new merchandise into market that is non related to the brewery industry may vie with brewery merchandises for consumer disposable income. The debut of GSM service into the Nigerian market in 2003 created a serious competition for the brewery industry ( Equity Research study, 2006 ) .

The industry has good distribution webs, in fact, they are the purchasers in the industry as they control motion of the merchandises from the manufacturer to the retail merchants, and therefore find the monetary value of the merchandises to a certain extent. This unluckily does non let interaction between the manufacturers and the consumers, nevertheless the participants in the industry particularly the two large participants strive to keep contact with their consumers by advertizements, publicity of events and besides sponsorships of assorted programmes and activities ( Jernigan & A ; Obot, 2006 ) .

Dickering Power of Suppliers

Suppliers in the industry include distributers of natural stuffs, constituents and finished merchandises. Such constituents include bottles, crown corks, labels e.t.c. These services are outsourced because the Nigerian jurisprudence does non allow the brewery houses to bring forth them ( Equity Research study, 2006 ) .

There are more distributers and providers than bing brewery houses in being. The natural stuffs and constituents being uniform give the makers the luxury to take their providers at will ( Equity Research study, 2006 ) . Nigerian Breweries entirely has about 147 distributers and jobbers within the state ( Famurewa & A ; Orekoya, 2008 ) . However the distributers may present a menace to the industry during industrial actions.

Menace of new Entrants

Harmonizing to Porter, the menace of new entrants will impact the profitableness of an industry ( Porter, 1985 ) as the officeholders may be forced to take down their monetary values in order to deter new entrants thereby cut downing profitableness. In the Nigerian Brewery industry, some factors which help to raise barrier to entry include capital demands, legal costs, economic systems of graduated table, distribution webs ( oppapers.com, 2011 ) . Nigerian Breweries and Guinness both have foreign proficient spouses who provide the needful proficient and fiscal aid ( Corporate Nigeria, 2010/2011 ) . The other companies are chiefly public or province owned and are localised within their part.

There were no new entrant into the concern, until 2009 when SABMiller a South African company came on watercourse with the acquisition of Peabody Breweries and Standard Breweries. SABMiller scheme in deriving portion of the market portion was to bring forth low cost beer for a section of the market who could non afford the premium trade name of the bing market. However Nigeria Breweries was already bring forthing such through Consolidated Breweries one of its subordinate ( Corporate Nigeria, 2010/2011 ) .

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Menace of Substitute

The handiness of replacement may impact an industry ‘s profitableness as consumers may make up one’s mind to exchange to a utility merchandise ( Boeing et al, 2008 ) . In Nigeria the ingestion of traditional drinks such as burukutu, palm vino and ogogoro has a cultural affinity among consumers in the rural and urban countries. Other possible replacements include alcoholic drinks such as vino, 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 section of the society ( Jernigan & A ; Obot, 2006 ) , while the non-alcoholic drinks are to aim the non-beer consuming spiritual groups.

Beer nevertheless remains the drink of pick as some surveies carried out have shown its prevailing penchant over other alcoholic drinks ( Obot, 2000 ) . Beer is known to account for 96 % of alcoholic gross revenues in Nigeria ( Corporate Nigeria, 2010/2011 ) .

Intensity of Rivalry among existing houses

This is a step of the extent to which bing houses compete among each other for clients, this could be monetary value and non-price based ( Boeing et al, 2008 ) .

In the industry as mentioned earlier, competition is between the two major participants, nevertheless there are no monetary value wars as the merchandises are differentiated and monetary value differences are undistinguished. The industry produces 22 trade names of laager and 4 trade names of stout besides other non-alcoholic drinks, Nigerian Breweries dominates the market in the larger ( Star ) section while Guinness dominates the stout ( Guinness ) section ( Corporate Nigeria, 2010/2011 ) .

For non-priced based competition, the two companies compete on merchandise inventions, such as packaging, stigmatization and advertizements. Consumers have witnessed invention of packaging from bottle to can and sip-it battalions.

Summary of Five Forces

A sum-up of the five forces is herewith presented in the tabular array below utilizing cardinal drivers and attendant consequence on industry ( Boeing et al, 2008 ) .

Table 1

Force

Key drivers

Consequence

Power of purchasers

Concentration is high, no bargaining purchase

Low

Power of providers

Suppliers more than Manufacturers

Low

Menace of replacement

Increased growing in replacement industry

High

Menace of new Entrant

High barrier to entry

Low

Intensity of competition

Two major rivals

Moderate

Overall analysis

Moderate

SWOT Analysis

SWOT analysis will be used to mensurate an organisation ‘s strengths and failings, chances and menaces in the industry on a four cell chart ( Dibb et al, 2006 ) .

Figure 1

Strength

Economies of graduated table

Strong fiscal base

Experience

High staff turn-over

Inflexible engineering

Cost Control

Failing

Opportunity

Technology

Market growing

Good distribution web

Govt statute law

Continued low border

Failure to capture mkt growing

Menace

( Dibbs et al, 2006 )

Recommendations

With strength and chance, an organisation in the industry can capitalise by enlargement or acquisition of weaker houses. An organisation with chance and internal failing should watch the market easy and explicate a scheme to construct on its failing. A weak organisation confronting menace should take the strategic turn-around required, by go outing the concern or let itself to be taken over by a bigger house. An organisation with strength but confronting menace should utilize its strength to get the better of its failing ( Dibb et al, 2006 )

Hirschmann Herfindahl Index ( HHI )

HHI is a measuring of the concentration of an industry. It is measured by squaring the amount of the market portion within that industry. A HHI figure greater than 1800 connote an industry that is well concentrated ( Boeing et al, 2008 ) .

Table 2

Company

Gross ( 2009 ) m

Market portion

Market share^2

Nigerian Breweries

$ 1,100

65 %

4,225

Guinness Nigeria

$ 587.7

25 %

625

Others

10 %

100

Entire

4,950

( Corporate Nigeria, 2010/2011 ) .

The HHI step gives a figure of 4,950 which shows a extremely concentrated industry be givening towards an oligopoly ( Boeing et al, 2008 ) .

Decision

The brewery industry has proved to be a sustainable concern in Nigeria with over six ( 6 ) decennaries of operation and holding survived old ages of unstable civil order, economic downswings and different authorities policy and reforms.

The industry has been systematically dominated by Nigerian Breweries and Guinness and is unhappily apt towards oligopoly with the acquisition of five bing breweries by Nigerian Breweries ( allAfrica.com, 2011 ) .

Nigeria is still considered one of the least penetrated beer market in the universe in footings of its demographic population of over 150million ( allAfrica.com, 2011 ) . More investors are decidedly welcome, nevertheless such investors will necessitate to perpetrate immense capital spending to construct workss or get existing houses and besides make a strong distribution web in order to vie with the bing houses.

Beer ingestion is a win-win state of affairs, Nigerians drink when they are happy and wish to observe, they besides drink when they are sad or emotionally down. The brewery industry will therefore continue to bask a sustained growing in the state.

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The Brewery Industry In Nigerian Markets Business Essay
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The brewery industry belongs to the fabrication sector under the Nigerian Stock Exchange ( This Day, 2011 ) . It dates back to over six decennaries with the birth of the innovator company ; Nigerian Breweries in 1949 with of star larger beer, followed by Guinness Nigeria in 1962 with Guinness stout. The major merchandises in the brewery industry are beer, stout and non-alcoholic drinks ( Corporate Nigeria, 2010/2011 ) . For the intent of this paper, beer will be used to imply lager and s

2018-10-21 08:53:55
The Brewery Industry In Nigerian Markets Business Essay
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