Yesterday the news came through that Nigeria’s giant beverage manufacturer, Guinness, has decided, in consonance with Diageo International (which is the majority owner of the Nigerian company), to stop the importation and distribution of the original Diageo brands that until recently were its pride. These top spirit brands include Johnny Walker, Singleton, and the original Baileys Irish cream
Some of these spirit brands, already world beaters in their own rights, have already taken prime positions in each of their categories in the Nigerian market and contribute N14 billion in sales to the beverage giant’s coffers.
Though that figure may look impressive, the harsh realities of the exchange rate regime in Nigeria have turned the brands into an Achilles heel in the feet of the manufacturer. Here are the 7 reasons why Guinness and Diageo decided it was time to change strategy regarding the future of the Diageo spirit brands in Nigeria:
Exchange rate impasse
Compare a total sales of 14 billion naira in one year from the Diageo brands to a loss of N49 billion in Guinness books (as a result of Nigeria’s notoriously turbulent exchange rate regime) in the first half of 2023! Although the entire loss may not be attributable to forex issues around the imported Diageo brands only, a significant percentage of it would be due to them. It, therefore, seems to make a lot of business sense to let the Diageo brands go if only to substantially reduce the challenges associated with sourcing forex and planning for the market when you can not predict what the cost of importing the product will be in the next wave.
Focus and conquer
“This change will better position Guinness Nigeria to focus on our core business, which has consistently delivered growth over the years, despite the challenging external environment,” says John Musanga, Chief Executive of Guinness Nigeria. The company now hopes to direct its energy inwards to drive its beer and successful locally-produced spirits. The company, which had recently expanded capacity in the Ogba and Benin breweries will be leveraging its strengths to benefit from those investments.
Play to strength
Rather than spend its energies sweating after hard-to-source forex and going through the vagaries of importing and selling expensive Diageo spirits, it will be focusing on its inherent capacities in manufacturing, marketing, and distributing local products which are areas in which it has a comparative advantage. This focus should positively reflect improved performance in its well-known locally produced spirits, beer, non alcoholic beverages and ready-to-drinks(RTDs).
There is a possibility that Diageo has not been impressed with Guinness’ performance with the drinks since 2016 when Diageo entrusted its brands to its Nigerian subsidiary. It is true that Guinness has huge sunk capacities in marketing and distribution, but the diffusion of focus from its traditional playgrounds may not have produced the best results. In 9 years, according to Guinness, the total sales of Diageo have remained at most 6% of Guinness revenue while its locally manufactured products continue to grow in leaps and bounds.
Diageo will now set up a spirits-only subsidiary in Nigeria with a team mandated to win bigger laurels in the lucrative spirits sector. From a trade point of view, this makes more sense as Diageo owns the brands and will be dealing with its own “long arms”, giving greater flexibility in resolving payment issues involving forex.
Despite Nigerians’ embrace of expensive imported products, the fact still remains that at the end of the day, Nigeria is still largely a bottom of the pyramid market where the cheaper a product is the higher the likelihood of its sales in massive volumes. Organizations like the Guinness’ of this world thrive in huge numbers which are easier to achieve in more affordable local products, for example Gordon’s moringa (N3,000 approx.) vs Gordon’s UK which costs nearly N10,000 in the open market. This is not to mention the far more affordable beers, stout, or even RTDs like Origin bitters, which goes for as low as 500 naira on the street. With the paucity of disposable cash, most consumers will have to settle for what they can afford. But with massive volumes, this is still good news for makers of these affordable drinks in a market that is 200 million strong. With this type of scenario, who wouldn’t want to keep his best fighters at the bottom of that pyramid?
Did they see tomorrow?
Its a good question to ask, did Guinness Nigeria see a day like this in their crystal ball when they decided to localize and commence the production of the Nigerian version of several of these international brands? It’s a good question for a full introspective essay but suffice it to say that this is another good reason why saying goodbye to the departing brands will not be so painful after all. The company already has agreements with Diageo to locally produce Smirnoff Vodka, Gordons Gin, McDowell and Royal challenge whiskey in Nigeria. While Smirnoff is already well established, the low cost entry strategy of Gordons Gin and the moringa extract addition has assured its place in the consumers heart. McDowell is already gaining huge disciples in the low price segment. Let’s not forget that there is already a Nigeria version of Irish whiskey (also by Guinness), which though many consumers say is not as Irish as Irish whisky!
…And those crazy bootleggers
Nothing is more annoying than spending tons of cash to market a range of products while some unscrupulous smugglers, fakers and illegal importers flood the market with look-alikes that may sometimes be genuine too. And in a country where the law has got its own hands tied, its hard to even control the flood. Another reason why a smart company may just want to hands off the import dependent aspect of its business.