How Nigerians drank N2.18T worth of alcoholic beverages in 2022; A data-driven journey through the Nigerian Alcoholic Beverages?Industry.

Nigeria savours alcohol, and data tells the love story.

Putting this in context, if the alcohol consumed in Nigeria last year was shared equally amongst all Nigerians, each person would have had 16 bottles each! So, we spent the value of 13.3% of the country’s 2022 annual budget on alcohol alone. Research puts the alcoholic beverage industry revenue at about 2.18 Trillion Naira, which compares to approximately half that of the dairy industry and is almost four times more than the revenue of the country’s seasoning industry.

One could wrongly imagine that the reduced spending power, elections preparations, Naira notes revamp, and insecurity issues would make the overall spend on alcohol decline. However, this industry has recorded consistent overall year-on-year value growth. The Nigerian alcohol industry is resilient and adaptable, offering a wide range of products to suit all budgets. From premium whiskeys and champagnes to affordable sachetised bitters, PET-bottle gins, and local brews, there is something for everyone.

The range of alcohol beverage options is only one of the factors that explain the industry’s growth; many other important elements facilitate its sustainability. But before examining these other factors, one has to first wonder why Nigerians keep drinking more, what the top selling alcohol categories and brands are, what companies are making a killing, how well the new entrants keep up, and how technology is impacting this industry. Perhaps, most important, is the all-important question: Is it profitable to invest money in this industry? The answers in this article draw on insights from industry insiders, published data, and my own experience in the wine and spirit industry.

Categories & Competition

The documented Nigerian alcohol industry typically cuts broadly across beers, spirits, wine (and champagnes), ready-to-drink, and now recently, ciders. All of these categories have gained value growth, with beers and spirits contributing a massive 54% and 36% respectively of that total consumed value.

In the Alcoholic Bitters Category, Action Bitters and Orijin Bitters both experienced about 20% consumption volume growth and about 35% value growth, jostling to the front of the category line with a wide-gapped lead. Action Bitters alone owned over 40% of the market share while Orijin owned 17%, leaving the remaining 43% for over 29 other brands to battle over.

Perhaps the most interesting of these other smaller players is Alomo Bitters, which was the leading Bitters brand many years ago. Even though it has started to show signs of a come-back, experiencing significant growth of 147% in 2022, it could not rack up to 2% of the overall Market share in the year in view, spouting the largest 5-year decline in the bitters industry of over 25%. Nevertheless, it is not only Alomo Bitters that continues to teeter over the abyss. In the past year alone, other alcoholic bitters like Erujeje, De Rok, Four Horses, Aperol, Baby Oku, and Rocket, have experienced significant falloffs, with no break in sight.

Very close in taste and style to the bitters category is Schnapps, which has Seaman’s Aromatic Schnapps owning over 85% of the market share. Seaman’s experienced a 62% growth from the previous year while riding on the back of massive and innovative advertising campaigns that saw it gain renewed goodwill in traditional spaces. An example is its recent ‘Unlock Your Blessings’ 2023 advertising campaign.

For volume consumption in the Wine category, the leading brands in descending order are Baron Romero, Four Cousins, Don Simon, 4th Street and Baron De Vals. Andre, although not a still wine like the others mentioned, was also consumed almost as much as 4th Street wine. It is interesting to note that more than half of the wines consumed in Nigeria are Spanish brands, while the consumption volume of South-African and U.S. wines follow from a distance. Overall, the data shows that Still wines and Spanish wines are doing the magic for the wine-loving community in Nigeria. Wines have also served as a comfortable entry point for new alcoholic beverages consumers; especially brands like the sweet red variants of Four Cousins and 4th Street.

It does seem like nothing novel is happening in the Beer industry even with shifting brand allegiance and an overall 10% value growth –business is stolid and steady. This is evidenced by the drinking tables in most Nigerian leisure spaces, which remain dominated by sweating green/brown bottles and the traditionally foaming glasses that accompany them. Lager still leads and Stout follows, Radler and other flavoured beers are comparatively new and experiencing little growth, while Ale remains relatively unsampled across Nigeria.

Over 99% of branded consumed beer is locally produced by Diageo, Anheuser-Busch inBev and Heineken (Nigerian Breweries) – just like in previous years. Trophy, Goldberg, Hero, Life, and Heineken, in that order, still lead volume consumption. However, the subcategory has seen a single-digit but notable shift from value brands to standard and premium brands.

Asides Olmeca Tequila, which has seen over 5% volume decline, other products within the Tequila subcategory experienced significant volume growth (double-digit) versus the previous year. Despite its aforementioned decline, Pernod Ricard's Olmeca Blanco still leads the subcategory, with Bacardi's Camino following closely in terms of consumption volume. Don Julio, Azul and Sierra experienced significant growth also. It is important to note that in terms of value, Azul has leapfrogged its peers due to its current hype and profile in Nigerian elite entertainment circles. A few sparklers, Dorimees (a viral Nigerian slang for extravagance), and nightclub hype-men later, Azul leads the category by an overwhelming gap, achieving about double the value of Olmeca’s revenue.?

Another notable comparison is Jameson versus one of its rising competitors, William Lawson, both in the Whiskey category. We watched Jameson's volume decline by about 6% while William Lawson's volume doubled. However, the overall consumption in Naira values are kinder, with William Lawson's value growth closely matching its volume growth at 100+% and Jameson having a significant 20% value growth despite its volume decline. The most immediate argument for Jameson is its price benchmarking as a leader within its sub-category, which allowed it to grow revenue even while experiencing a (temporary?) decline in volume. It is important to note that the whiskey category experienced an unprecedented influx of new entrants within the year but hardly any of the new entrants made any noticeable success. Also, while it does seem like Irish whiskeys have enjoyed the spotlight for a few years now, Scotch Whiskey still leads by volume, followed by Indian Whiskey (value brands) and then Irish whiskey.

Examining the Hennessy brand, which experienced about 20% decline in volume consumed, and compared to its closest competitor within the Cognac subcategory - Martell, which had a volume growth of over 25%, one could imagine the worst. Looking further across the last 5 years, Martell has grown by over 70%, while Hennessy, which seems to have plateaued, managed to achieve about 4% growth. The numbers clearly reflect each brand's position in the shared market. Nevertheless, examining the actual volume consumed last year, Hennessy just about doubled Martell, and in money terms, Hennessy generated over three times what Martell did in the last year, proving to be the market leader in the Cognac subcategory by a long shot.

Being a leading brand in the industry comes with additional challenges such as the conjoined issues of infiltration of parallels (where importers illegally import brands for commercial purposes) and the scourge of a counterfeit drinks market. For both parallels and fakes, the target is always the leading brand. Diageo has championed the fight against fakes for the longest period in Nigeria and very recently, other companies have joined those efforts. While E-commerce drinks platforms and some other agencies purport to combat counterfeit drinks, we clearly do not have enough firms wholly focusing on addressing this one menace. Asides the loss of revenue to brand owners/distributors and the breakdown in consumer-brand trust, dealing in counterfeit drinks is criminal and could lead to health challenges and problems with food and drugs regulation agencies.

Distributors

In examining the industry from the point of view of distribution, it is important to mull over what success looks like for Alcoholic Beverages Distributors in Nigeria. The key success metrics that the global and national distributors in Nigeria are interested in revolve around market share, brand equity, sales volume and value, product distribution, on-premise and off-premise visibility, and relationships with supporting industries.?

To excel on these metrics, these companies have deployed a range of route-to-market models. The most structured of these models is the Key Distributorship (KD) model employed by Diageo. Diageo onboards one or two KDs per city to manage sales and distribution and supports these KDs with brand management, marketing and other support functions. Pernod Ricard Nigeria employs a leaner and seemingly more effective version of the KD route to market, focusing on metropolitan cities only and posing a much flatter management and support structure. Bacardi also attempts to explore the KD model, although it does almost zero above-the-line and trade marketing.

On the other hand, Josien – a distributor for Hennessy, Moet, and a range of other brands – employs a tiered distributorship model that has worked well for years but is starting to crack due to the lack of clear-cut geographical territory. This undefined territory issue has caused its 50+ distributors to cannibalise themselves to the point of almost zero profit margins. However, driven by leadership changes from one of its parent companies – Moet & Hennessy, Josien has recently made efforts to restructure its model. However, any results in renewed trade efficiency are yet to be seen.?

Coca-Cola HBC – distributors for Jack Daniels, The Macallan, etc. – known for the masterful distribution of its non-alcoholic drinks brands, enjoys a direct-to-trade model, selling directly to retail stores, clubs, hotels, cafes, restaurants, and wholesalers. While it maintains full control of its distribution structure, it does not take advantage of the redistribution capabilities of influential (re)distributors for its wine and spirits business. Other major Distribution companies in Nigeria using clearly defined routes to market include Brian Munro, Le Drop, Jayish, Distell, FMCG Distribution, Global Beverages, Eastern Distilleries, Chuby Zion, and Intercontinental Distillers, among others.?

Acting as a significant back-bone to these companies are the warehousing and logistics companies that provide them with inventory solutions. Alma Stores and its affiliates, having served for over two decades as key distributors to major global consumer-goods companies, have successfully integrated sideways into also providing warehousing solutions for some key players in the industry.

While Alma Stores’ warehousing facility is a standard model to be followed, the majority of the other warehousing solutions within the industry are lagging in organisation, automation and capacity. These are mainly smaller storage spaces, semi-structured, and spread across Trade Fair market, Okearin market and the Ikeja axis.

Competitive Advantage

Industry players know that just under half of alcoholic beverages consumption in Nigeria happens on-premise (lounges, clubs, parties etc.), and the rest, off-premise. They understand that we love to celebrate and? show off while at it, and we take pride in our wholesome communal culture. They also recognize that there is a stark dichotomy in the consumption of premium drinks cutting through the North and South of the country. These industry players are confident that despite the paucity of disposable income, the market for alcoholic beverages will thrive. With data in hand, these are the easy things to know, with recent events like the COVID-19 pandemic and continuous consumption of alcoholic beverages - despite the subsequent restrictive quarantines - helping to reaffirm the stance. The harder part to understand is the why?? Why do a People with dwindling spending power keep spending more on alcoholic beverages? Whether it is due to the unwavering celebratory culture or as escapism for their socio-economics problems, the answers are tough and hard to come by, and the way companies aim to answer these questions will significantly impact their brand strategy, and build them competitive advantages.

Even though brand owners, companies and distributors in the alcoholic beverages industry want to grow their brand equity, distribution and visibility? in unique ways, the range of approaches that they deploy is limited, focusing on on-premise manager activity, off-premise salesman efforts, social influencers, billboards, and music and film events; in essence, rinse & repeat. However, some companies have demonstrated such executional excellence in these predictable approaches that they have gained enough significant competitive advantage to result in unmatched success.?

In addition to execution excellence, initiatives like human resources and head-hunting capability, eco-leadership, and data collection capability have all shown to grant significant competitive advantages to some distributing companies. Within the last year, billions of naira has been expended across the industry on data-collection efforts. Recruiting also seems to favour prospects with core in-market homecare and personal care experience. Furthermore, across some of the companies, top leadership teams have favoured leaders with successful wartime track-records. It is important to also note that factors such as global brand strategies, the size of the marketing war-chest, and distribution company strategy, also influence the marketing and brand building efforts.

Industry Environment

Reflecting on the tense external environment in 2022 as Nigeria built up to its general elections, it was understandable that alcoholic beverage businesses and stakeholders were mostly pensive, holding back key decisions until there was clarity in the political direction. Despite these, the alcoholic beverages industry and supporting industries that service social gatherings, nightlife, and other lifestyle and entertainment events, thrived last year.?

Hometainment - coined from ‘entertainment + home’, which took flight during the height of the COVID epidemic, is still considered a potential and under-tapped revenue pathway. Instagram influencers became even more prominent in the feel-good scenery, getting significant brand ambassadorial contracts. The nightlife scene also saw an influx of over 100 new clubs and lounges launched across Lagos alone.

On the digital side of things, the impact of technology on the industry is seen in the E-commerce space (with over ?4bn revenue) where Jumia leads. However, away from the E-commerce juggernaut, it is impressive that a few companies such as drinks.ng and @naija_liquor have focused on digitally connecting buyers and sellers in the alcohol industry by exploring an alcohol-focused vendor platform model.?

Trade Depot's Shop-Top-Up, Seta, Vendease, MyMiniBar, MyLiquorhub, and BarrelsDotNg, etc., are newer players in the industry who have brought in significant capital, technology capacity and Buy Now Pay Later (BNPL) options into wines and spirits redistribution, targeting retailers, lounges and clubs, and even wholesalers.

For instance, one of these new players makes use of a purchasing history credit-rating approach for its BNPL offering rather than the typical banking history approach. It also, very much like Shop-Top-Up and Cubed-by-Drinks, uses an in-house developed order-aggregation algorithm to optimally service customers. From these new players alone, foreign funding of over N500bn has been injected into the alcoholic beverage industry in Nigeria within the last 2 years, further validating the growth opportunities within the industry.

Industry forces

In maintaining industry relationships, an industry supplier has to contemplate the robustness of its marketing budget, the strength of the distribution capacity of its local partners, and global brand perceptions; these significantly affect its bargaining power across the industry.

The power dynamics from supplier down to consumer is also affected by how much market influence the middlemen hold, which allows them to rapidly facilitate redistribution of brands through their established networks. The market influence of the middleman allows him to reject, or like the distributor - Ekulo, accept and redistribute thousands of products. This influence also guarantees the middleman sufficient credit facilities from suppliers and banks, which allows further extensions of credit down the value chain.

Perhaps the most evident example of how much influence the middleman wields is in the case of former Nigerian Breweries (NB) distributor - Maduakor - who delivered over 20% of NB’s volume. Due to a variety of reasons, Maduakor switched sides and now distributes for Ab InBev (International Breweries), an incident that conveniently coincides with loss of significant market share of key NB brands and market share gains with Ab InBev brands.?

New entrants from supplier sides are rampant in the alcoholic beverage industry in Nigeria. In 2022 alone, over 18 new whiskey brands were introduced to the market; however due to low marketing effort (budget?) and product-market fit issues, most of these new alcohol products are barely recognised or known by consumers. For distributors, the last year has not seen any noticeable increase in their number as new brands mostly seek to use the old and trusted distributors or explore more direct routes to market. Also, to serve as (national) Distributor, four key attributes called the 4 I’s are often sought after as a combined attribute. These attributes are Influence, Infrastructure, Investment and Involvement, and the full combination of these 4 factors has proven to be rare.?

In the redistribution sub-sector though, there are over 20 new players that have significantly made an impact on the industry. To be an impactful redistributor, any combination of at least 2 of the aforementioned 4 I's is often sufficient. There is a dark side to this, however. While these redistributors have made products reach the consumer easier and faster, the considerable ease of entry also allows for unnecessary effort duplication, in-market conflict and competition, and in the mid-term, cannibalization of margins.

Positively supporting this influx of new players is the entrance of new consumers. Newer groups, who previously did not drink, have started to. Compared to previous years, it is less socially frowned upon for many demographical and gender groups to drink publicly. There is less religious stigmatisation around drinking and also a barrage of introductory drinks such as sweet wines, flavoured spirits and beers, etc., that help the transition. This has led to an increased number of Nigerians drinking alcohol. On the other hand there is the introduction of non-alcoholic beers and wines, providing options for non-drinkers to turn to.?

Reflecting on the intricacies of the bargaining power of buyers and that of suppliers, it is not surprising that the profit margins down the value chain in the alcohol industry can be five times that of other similar industries, with on-premise markups sometimes as high as 1,000%. The threat of alcohol substitutes is low; however the massive influx of new wines and spirit drinks provides healthy rivalry within the industry.

In light of these, for alcoholic beverage companies to maintain and grow market share, revenue and profit, they have to leverage on their advantages, and deliver excellently executed and consistent brand and trade marketing activities.

Closing

Despite the aforementioned dwindling spending power, the introductory year of a new government, consistent increase in prices and alcohol tax, and the insecurity affecting the nightlife scenery, the projection is that in 2023 and 2024, Nigerians will continue to drink more alcohol than they did in previous years. All the factors supporting this growth are hinged on the average age of the population (200m+) being less than 20 years old, and the size of the population between 18 and 55 being over 60% of the population.

Finally, considering that homemade (unbranded and undocumented) brews still account for over 30% of overall consumption, there is clearly room for growth within the industry. The alcoholic beverage industry presents itself ready for business with more global alcoholic beverages firms, financial institutions, insurance companies, health and fitness firms, and even governmental bodies.

The industry’s maturity phase is set to last much longer and with the data to prove this, there is sufficient confidence that any observed challenges, competition, and rivalry are mere scratches on the body of massive revenue and profit potential that the Nigerian alcohol beverages industry has to offer to its smart investors.?

-Aito Osemegbe Joseph