Nigeria spearheads optimistic outlook for beer sales in sub-Saharan Africa

Author: Spiros Malandrakis

Date published: 22 Jul 2009

As volume growth of beer in developed markets is grinding to a halt, manufacturers are accelerating their efforts to tap into emerging economies that have been less impacted by the ongoing global financial crisis. Nigeria, with its high number of legal drinking age consumers, rising middle-class and geographically strategic positioning within the African continent, is hence emerging as one of the testing grounds for manufacturers' push into the sub-Saharan region.

Tapping into the lower end of the market

According to Euromonitor International's preliminary findings, beer sales in the country will amount to 1.6 billion litres in 2009, registering 9% volume growth, marginally down from 10% in 2008. While Nigeria is set to retain the leading position in stout in the global volume rankings, with 315 million litres in 2009, equating to 10% volume growth on the previous year, high single digit growth rates will also be witnessed in all other beer segments, underlining the remarkable resilience of the sector in the country.

Small bars or 'beer parlours' are extremely popular in Nigeria and lead on-trade beer sales. According to industry sources, there are an estimated 500,000 such outlets throughout the country as beer consumption is very much a social activity, and, as a result, on-trade outlets dominate beer with around an 80% share of sales. The pronounced social element of Nigeria's drinking culture has thus also boosted the importance of aspirational credentials.

Although aspirational consumption and westernisation trends have been the primary drivers of the overall beer sector, which posted a 9% volume CAGR over 2004-2009, lower-income consumers are rapidly taking centre stage as manufacturers increase their efforts to provide affordable alternatives to popular home- brewed alcoholic variants. Premium and standard lager have hence traditionally capitalised on aspirational imagery, posting a buoyant 9% volume CAGR over 2004-2009, while the economy segment has been largely ignored until recently.

SABMiller's announcement in July 2009 that it plans an eight-fold increase in output at its Pabod Breweries unit in Nigeria by 2010, while seeking other potential acquisitions in the West African country, underlines the strategic importance that the country as well as the region holds in terms of boosting global beer volumes and counterbalancing the sobering performance of mature, developed markets. Nevertheless, SABMiller is going further than that, shifting its focus towards economy, domestically produced beer based on local sourcing. The company plans to produce more affordable brews using locally sourced ingredients such as cassava, a root vegetable that yields a rich starch, in place of more expensive imported ingredients.

Africa emerges as one of the global beer drivers

SABMiller is consciously targeting the - until recently - overlooked economy segment of a market that had been traditionally dominated by standard and premium offerings from leading rivals Diageo and Heineken, which are predicted to account for respective shares of 20% and 61% in 2009.

SABMiller is also looking at growing barley in a number of other African countries such as Angola, Ethiopia, Mozambique and Zambia. It is already working with local farmers in Tanzania using a “hub and spoke” model, where one larger commercial farm supplies around 40% of the barley and trains smaller growers in the surrounding area to supply the rest. Minimising packaging costs by using alternatives such as cardboard or collapsible plastic containers would also assist in significantly raising penetration levels among lower- income consumers in a country where the World Bank estimates that up to 40 million Nigerians between the ages of 18 and 25 are unemployed.

While Nigeria's comparatively upbeat economic prospects and projected 8% beer volume CAGR over 2009-2014, according to Euromonitor International's provisional findings, underline the country's strategic importance for the beer industry, investments in a number of other previously overlooked African markets reaffirm the continent's potential over the short and medium term.

SABMiller announced in July 2009 that it will open a new US$125 million brewery and sparkling soft drinks plant in Angola within the year to support the country's growing demand for beverages. On the other hand, Diageo plans to expand the premium Windhoek beer brand across Africa during 2009 after acquiring the global rights to produce and distribute the brand outside its key South African and Namibian markets. Whether targeting the upwardly mobile middle-classes or the mass lower end of the market, beer is rediscovering its lost fizz on the African continent.