At the sprawling Guinness Nigeria brewery in Lagos, workers in high-visibility jackets churn out bottles of Guinness Foreign Extra, a superstrong variety of the Irish stout that has been a local favourite for more than 70 years.
But the Nigerian beer market is a hard one to navigate. In the shadow of the factory, tuk-tuk driver Taiwo Oladunjoye said he now favoured Trophy, a cheaper domestic lager, over Guinness. “Everything is expensive in Nigeria now,” he added. “Even Trophy is going up.”
Global drinks group Diageo announced last week it had sold its 58 per cent stake in Guinness Nigeria to Singapore-headquartered Tolaram, a family-run conglomerate with extensive operations in the African nation, for about N103bn ($70mn).
The deal marks the latest in a series of western corporate retreats from Nigeria as the country reckons with chronic inflation and a currency exchange crisis. But the exits have left room for conglomerates such as Tolaram, which have large local footprints and are less exposed to currency shocks, to pick up the slack.
“Some of the multinationals in the exodus, for them Africa is a small number in relation to their global numbers,” said Sajen Aswani, Tolaram chief executive. “Africa is a significant part of our revenues and making operations work in Africa is mission critical to us.”
Founded in 1948 as a textile retail shop in Malang, Indonesia by refugees from Sindh province following the partition of India, Tolaram moved its corporate headquarters to Singapore in 1975 and started trading in Africa later that decade.
Sajen Aswani and his brother Haresh, who run the business in Africa, say that as a family company they can take a longer-term view than listed multinationals.
“Public companies see things in quarterly terms,” Sajen said. “We don’t. Sometimes a business of ours suffers for years before it turns around.”
Nigeria, with an inflation rate of almost 34 per cent, is in its worst cost of living crisis in a generation. Shortages of foreign currency and a sharp devaluation of the naira have forced prominent global businesses to depart or scale back operations.
They include Procter & Gamble, which stopped manufacturing locally, and Unilever. Pharmaceutical groups Bayer and Sanofi have also given up on Nigeria, GSK has stopped doing direct business in the country and nappy maker Kimberly-Clark last month wound up its local operations two years after investing in a $100mn Lagos facility.
While Tolaram has interests in fintech and infrastructure, one of its biggest successes has been taking its Indomie noodles to Nigeria, winning over the nascent local market for convenience food that Nestlé’s Maggi brand had failed to capture.
“The fundamental belief of many of these multinational companies is one size fits all,” said Sajen. “We don’t think that way. We tend to think that each individual market, region and territory have different nuances.”
To protect the business against currency fluctuations and the foreign exchange shortage, Aswani said Tolaram produced goods locally as far as possible to reduce its reliance on imports.
Other companies with big local operations including Turkey’s Hayat Kimya, whose Molfix nappy brand has become the largest in Nigeria, and Singapore-listed Olam, an agricultural commodity trader and maker of packaged foods, are also benefiting from western corporate exits.
“Companies like Tolaram have mastered the art of moulding their products to fit the consumer pool,” said Bolatito Bickersteth, analyst at Lagos-based data provider Stears.
Noting that Tolaram sells two noodle brands at different price points after engaging in rigorous market research, she said “the bigger multinationals often wonder if this type of hassle is beneficial to their overall revenue to justify the level of investment and research”.
Tolaram already has distribution and manufacturing partnerships with multinationals including dairy producer Arla and Colgate-Palmolive. US packaged food group Kellogg paid $450mn in 2015 for a 50 per cent stake in Tolaram’s food distribution business Multipro and later formed a joint venture with Tolaram’s food manufacturing arm.
“Going forward we’ll see more of these JVs,” said Bickersteth. “People want to be able to buy Coco Pops at a cheaper price, because of shrinking consumer wallets . . . So the businesses that can bring these goods will be around for a long time and that’s where I think companies like Tolaram are getting it right.”
Diageo’s exit from Guinness Nigeria has symbolic resonance — the country in 1963 became home to the first Guinness brewery outside the UK and Ireland. It is also a stark reminder that multinational bets on the growth of middle class consumers in emerging markets do not always pay off.
“The bigger question is if the middle class will ever materialise — or is Nigeria becoming home to institutionalised poverty,” said Aubrey Hubry, a senior fellow at US think-tank the Atlantic Council. “People always say it’s a market of 200mn — but 85mn live in abject poverty.”
Nigeria was once considered a promising consumer market, with global brands assuming its huge population would grow richer and usher in a wave of demand for their products.
But the country’s economy — once Africa’s largest — has slipped into third place, with the IMF predicting that it could fall to fourth behind Algeria by the end of the year as an economic slump persists.
“It looked like a star economy of the future and Guinness was so iconic in Nigeria,” said Trevor Stirling, a Bernstein analyst who worked for the brand in Ireland in the 1990s.
Nigeria is the world’s third-largest Guinness market, behind only the UK and US. But Diageo had been steadily losing ground in the country since SABMiller, the brewer of Trophy that has now merged into Anheuser-Busch InBev, challenged Guinness and Heineken’s duopoly by entering Nigeria in 2012 and aggressively undercutting rivals on price.
Guinness Nigeria’s market capitalisation has plunged since its peak that year of $2.6bn, as it lost market share.
“The economic crisis is of course affecting buying power. Consumption patterns have changed,” said Haresh Aswani. “However, the company does not consider itself in competition with the cheaper lager offerings in Nigeria.”
“Guinness stands on its own . . . a different category altogether,” said Sajen Aswani. “We’re hoping that we can persuade the consumers to eventually pick Guinness despite its premium pricing over the other lagers because the value proposition is better.”
Beer consumption growth in Nigeria has defied the crisis to remain steady at about 4-5 per cent a year, according to Nirgunan Tiruchelvam, an analyst at Singapore-based Aletheia Capital.
“Unlike in some countries where going for a beer might be considered more lowbrow, in Nigeria the middle classes are increasingly drinking beer. At some point as the market matures, it will also go from bottle to canned beer, meaning cash generation for Tolaram will improve,” he added.
Despite selling its stake in the company, Diageo still owns the Guinness brand and has formed a long-term licensing agreement to allow Tolaram to distribute the drinks group’s other brands in the country. The Singaporean company said it currently had access to half a million retail outlets in Nigeria.
“When Diageo decided to exit, they did it very responsibly. Instead of packing up and going they figured they would try and find a steward that was better than them so they could focus on their geographies that they were good at,” said Sajen Aswani.
“I think a healthy hybrid is what people should be thinking about,” he added. “The partnership model is the future for places like Africa.”
