Heineken warns of value brand switch amid Nigeria downturn
Nigeria accounts for about half of Heineken's Africa/Middle East sales
Heineken has said consumers are "still drinking beer" in Nigeria but warned that many are trading down as the country recovers from a major currency devaluation.
Nigeria accounts for about half of Heineken's sales in Africa/Middle East, but a move to value brands is increasingly putting pressure on margins, Heineken said this week. However, despite economic turmoil that led to the withdrawal of a currency peg to the US dollar, Heineken's overall beer volumes in the country increased in the first-half of the year.
"As for consumers in Nigeria, the good news is that they keep drinking beer," Heineken CFO Laurence Debroux said yesterday. "After a first half of 2015 where we were a bit worried about the volumes, now this is back, but [consumers are] definitely trading down to more value and lower mainstream brands, which are actually flying in volumes."
Nigeria has been hit by an economic downturn fuelled by a drop in oil prices. On 20 June, the government introduced a flexible exchange rate that resulted in a 40% devaluation of the Naira. Heineken said this week it has taken a EUR24m hit from the devaluation, however, it is now finding it easier to convert Nigeria's Naira into Euros and US dollars. The brewer had previously warned that currency extraction was getting "more difficult but is not impossible".
Commenting on the situation in Nigeria, Heineken CEO Jean-Francois van Boxmeer said the brewer will "need to do some pricing over there because otherwise you might risk your business going really down".
Van Boxmeer was speaking after the release of H1 results yesterday, in which Heineken shrugged off a "subdued" Q2 to post first-half sales and volumes growth. The half included an asset write-down in the Democratic Republic of Congo, which van Boxmeer said was related to a US$400m capacity upgrade in the country five years ago.
The CEO said the company was "much more optimistic five years ago than we can be today" towards the country, which is still recovering from a regional war from 1996 to 2003 that killed millions of people.
"That said, I think that we continue to look at the DRC as a potential good market seeing its population and urbanisation," van Boxmeer added.
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