Essay on Disruption of Premium Beer Market in Nigeria Dominated by Heineken Lager

Disruption of Premium Beer Market in Nigeria Dominated by Heineken Lager

Over the past decade, Nigerias economy has performed very poorly. This has mainly been attributed to the fall in oil prices, which caused the naira to weaken and thus reduce the spending of different households in the country. This in turn hit the brewing industry very hard with reduced sales levels. Beer is not a necessity for most people hence they normally purchase it when they have high-income levels and they reduce purchases during tough economic times (Rutishauser, Rickert and Sanger, 2015). This essay is aimed at looking at how the beer industry, which is currently dominated by Heineken in Nigeria, can be disrupted and thus reduce this domination. This report will follow the SCQUARE model and incorporate the first phase system thinking and modelling process. Thus it will begin will background information on how Heineken came to dominate the beer industry and reasons why this is a problem, followed by the consequences, the pivotal question, the answer, and finally, recommendations on the issue will be provided.

Setting

Different premium brands in Nigeria include; Castel, Diego, SABMiller, and Heineken. National premium brands include; Guinness stout, Legend stout, Gulder, Star, and Harp. Before and during the economic turmoil in Nigeria, Heineken was able to dominate the beer market (Reuters, 2011). The main reason why Heineken dominated the beer market is that it was very proactive and reacted quickly to economic downturns. The company acquired two holding companies in the beer industries from the Sona group. The two businesses that were acquired had controlling interests in Life, Benue, Champion Breweries in Nigeria, and Sona. This enabled Heineken to increase its production capacity by three million seven hundred hectoliters. This aided in increasing the companys capacity. The geographical locations of the breweries also enabled the company to reach a wider audience. The areas covered include Onitsha (southeast), Ota (southwest), and Kaduna (north central) among other regions (Vervede, 2018).

The beer industry in Nigeria produces 18 million hectoliters of beer annually. It is second after South Africa in the continent. Heineken dominates this industry with a market share of 70%. Diageos Guinness business follows with over twenty percent, followed by SABMiller, which has a market share of less than 5%. The beer market in Nigeria has grown at an annual rate of nine percent over the past decade. Heineken acquired controlling interests in five major breweries and expanded its capacity by almost one-third (Oyeyemi, 2014).

The domination of the countrys beer market by one company and by such a huge proportion has many effects on the different shareholders who are involved. The customers have felt the impact in the relatively higher prices charged for the beer. The government is responsible in ensuring that businesses compete fairly and Heineken is very close to being a monopoly in the beer industry. This means that the government receives low amounts of taxes than it would have received if the different companies had relatively equal market shares. The shareholders of Heineken are however happy due to increased value of the share due to the increased value of the company. The employees are also compensated in a better way than those of the other beer companies. Finally, the community is adversely affected. This is mainly due to reduced job opportunities due to reduced employers. The domination of the beer market by Heineken has made it hard for small companies to join the industry and thrive since the company enjoys economies of scale, it covers a wide geographical region, and it has a wide variety of beer products for all income levels. The question that this paper aims to answer is how the domination of the beer market by Heineken in Nigeria can be minimized.

Causal Loop Modelling

The above Behavior over Time diagrams show that Heineken has been enjoying great advantages for having the greatest market share of 70% (Ekwujuru, 2017). The most important BOT diagram is figure three because it shows that Heineken is selling a very high volume of beer of the total 18 million hectoliters sold annually. This BOT therefore shows that the key measure of Heinekens performance is its sales volume.

The factors that have enabled Heineken to increase its sales volume include its multiple acquisitions, the variety of products it sells, marketing activities, and its wide geographical coverage. The company has acquired five beer companies that include; Nigerian breweries, consolidated breweries, and two holding companies from the Sona group. Factors that could restrain the sales volume sold by Heineken include government intervention through acts such as increased tariffs, increased competition levels. This could happen by the merge of different major players in the beer industry such as Diageos Guinness and SABMiller. The consequence of the merge is that it could lead to an increased market share of almost thirty percent and increased geographical coverage since the two businesses are located in many different parts of the country. Government intervention through an increase in tariffs could also discourage Heineken from selling high beer volumes because the revenue would still be taxed.

The merged companies should then increase their performance levels by increasing employee supervision to compete against Heineken. The diagram 4 below shows the relationship between employee supervision and their performance levels.

Dynamic Modelling

The figures below represent an affinity diagram based on the factors mentioned above that will aid to reduce the companys domination by reducing its sales volume through increased competition and increased government intervention.

The six categories used in the affinity diagrams include; measures of increasing government intervention, how to reduce geographical coverage by any one company, measures of increasing competition, measures to influence merger and acquisition decisions in order to prevent domination by any single company, measures to ensure high product quality by the competitors, and measures to ensure proper pricing. The use of this affinity diagram will aid in reducing the dominance of Heineken in Nigerias beer market.

The diagram below shows an inter-relationship diagram of the process to be used in the disruption of the beer market in Nigeria with the intention of reducing market dominance by Heineken. The main drivers in the inter-relation diagram include the merging of other large companies in the beer industry, geographical coverage, competition levels, and market share of the merged companies.

The cause of the problem being addressed in this paper is the domination of the beer market by Heineken. This domination is a problem because it is has turned Heineken into a monopoly. This domination is negative because it has reduced the sales volume and revenue being made by other beer companies in the country. The government is also receiving lower taxes than it would have received if the market share were distributed more evenly. Customers have a reduced variety of products because many of them purchase from Heineken as opposed to other companies. The customers also pay relatively higher prices for the Heineken beer products. The collapse of Heineken would also adversely affect the countrys economy. This is because the company is very large and its collapse would lead to the loss of many jobs and loss of tax revenue that was being paid to the government.

Answer and Recommendations

The implementation of the drivers will aid in reducing the market domination of the beer industry by Heineken. The action plan should be as follows. First, the government should put in measures that discourage further expansion of Heineken and instead encourage other companies to join the industry. To do so, the government should increase the tariffs charged to Heineken. It should also put in rules and regulations that ensure that the company does not gain any more market share by putting restrictions on the sizes of mergers and acquisitions. Second, the two major beer providers after Heineken should merge. This will ensure that their total market share increases and their geographical coverage will also increase. Consequently, their market share will increase due to increased sales revenue. Third, it is paramount for measures to be put in place to ensure that the quality of beer produced by the merged companies is of high quality and the prices charged are favorable. Finally, the merged companies should produce a variety of beer products this will enable the companies to attract a wide range of customers regardless of their income levels. Once these measures are implemented, the market share currently held by Heineken will reduce and the competition levels will increase which is beneficial mainly for both the customers and the government.

The implementation of this action plan will reduce Heinekens measure of performance, which is its sales volume. The concern will also be addressed since eventually the market share of Heineken in the beer industry in Nigeria will reduce considerably and give way to higher competition levels.

References

Ekwujuru, P. (2017). Breweries in battle to increase beer market share Read more at https://www.vanguardngr.com/2017/06/breweries-battle-increase-beer-market-share/. Vanguard.

Oyeyemi, K. (2014). Kill or Get Killed: The Marketing Killer Instinct. Trendy Publishing.

Reuters (2011). SABMiller expands in Nigeria to take on Heineken. Reuters. [Online] Available at: https://www.reuters.com/article/sabmiller-nigeria/sabmiller-expands-in-nigeria-to-take-on-heineken-idUSLDE7201BS20110301 [Accessed 21 Jan. 2018].

Rutishauser, G., Rickert, S. and Sanger, F. (2015). A perfect storm brewing in the global beer business.

Vervede, N. (2018). Nigeria: Heineken to lift local raw material sourcing to 60%. International Beverage News.