Last week, Diageo revealed it had sold its majority stake in African unit Guinness Nigeria to Singapore-based conglomerate Tolaram.
Nigeria became home to the first Guinness brewery outside the UK and Ireland in 1963. However, the country has proven a challenging place to do business in recent quarters, hit by a debilitating currency devaluation that drove up inflation and ate into consumers’ spending power.
Go deeper with GlobalData
The sale of Diageo’s 58% stake in the publicly-listed Guinness Nigeria is therefore not a total shock, especially in the wake of other recent announcements from multinationals about their operations in the country.
Earlier this year, Nigerian Breweries, the biggest brewer in Africa in which Heineken owns a majority stake, set out plans to suspend production at two of its nine plants after posting a loss of N106bn ($71m) in 2023.
However, after years of rumours over the future of Diageo’s total beer portfolio – which were reignited last December – and its place within the drinks giant’s strategy, this exit from Guinness Nigeria creates some food for thought.
Nigeria’s economic struggles
The sale of Guinness Nigeria marks Diageo’s third disposal in the African beer market in the last few years after the company sold Guinness Cameroon to Castel, as well as the Meta Abo brewery in Ethiopia, in 2022.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataBoth of those other operations had been losing money and struggling for market share, according to Kevin Baker, head of global beer and cider research at Just Drinks’ parent GlobalData.
Richard Wyborn, partner at Food Strategy Associates, tells Just Drinks the Guinness Nigeria sale does not come as too much of a surprise, especially with the economic landscape in the country proving “really difficult”.
“The naira [local Nigerian currency] has devalued massively, I think versus the dollar, more than 50% or 60% in the space of a year. You’ve got these really acute economic challenges that present major issues to companies for a number of reasons.
“I think the local beer market is under pressure. The devaluation of the naira makes it exceptionally difficult for international businesses to operate in that market because, while Diageo will source a lot of their raw material locally, there are still some things that they need to buy that are US dollar-denominated, rather than naira-denominated.”
The African country has an inflation rate of circa 34% and is amid its worst cost-of-living crisis in years.
Laurence Whyatt, head of European beverages research at Barclays Investment Bank, says Nigeria “has been hit disproportionately by the whole grain food crisis triggered by the war in Ukraine because it is a huge net importer of foods, particularly from Ukraine”.
Moreover, there has also been pressure on consumer demand for beer in the African country due to the pressure on spending and, as a result, “premium” beer sales have suffered, according to Whyatt.
He expects Nigeria to start showing “signs of improvement from the second half of this year”, helping boost the country’s beer market.
“With comps also set favourably for the second half, we expect Nigerian [beer market] volumes to recover sequentially as affordability pressures on lower-income consumers ease.”
Diageo in Africa
Diageo said last week the deal means it is creating a “new model for Guinness in Nigeria” and its locally manufactured ready-to-drink and mainstream spirits products in the country partnering with Tolaram, under new, long-term licence and royalty agreements.
Following the sale to Tolaram, Guinness Nigeria will continue to have rights to manufacture and distribute the Guinness brand as well as other Diageo brands that it currently manufactures and distributes, including “mainstream spirits”, a stable of brands that includes Johnnie Walker, Singleton and Baileys.
The London-listed group said the “transaction is consistent with Diageo’s strategy to operate a flexible and asset-light beer operating model”.
Nigeria represents 11% of Diageo’s total volumes in Africa, although it has been the leading market for the Guinness brand, accounting for over a third of all sales in Africa, according to GlobalData.
Trevor Stirling, analyst at AllianceBernstein, says the “Nigerian beer market has been weak and volatile due to economic volatility and devaluations”. He adds: “Diageo has been a major share loser in beer and effectively was forced out of the local mainstream lager market to concentrate on the Guinness brand, local spirits and RTDs.”
In the wake of the deal, Diageo will continue to market its spirits portfolio across the continent. Its presence in beer in Africa will include Guinness in Nigeria through the new licencing deal but, in terms of assets, will take in the majority-owned and publicly listed Guinness Ghana Breweries and East African Breweries.
Why Tolaram?
Tolaram, established in 1948, is a Singapore-headquartered enterprise with operations across Africa, Asia and Europe. In Nigeria, its consumer business operates under joint ventures with consumer multinational companies such as Indofood, Kellanova, Dano and Colgate-Palmolive.
However, this deal marks the conglomerate’s first move into brewing, which Wyborn says will be “really interesting” as the near-term beer future looks to be so volatile in Nigeria.
Baker says: “The fact that the stake has been acquired by Tolaram Group is surprising as the company has no background in brewing or alcoholic beverages, although it is active in the African consumer goods sector with joint ventures with companies like Arla and Kellogg’s.
“They also have a track record in distribution in West Africa via their Multipro Consumer Products subsidiary. By selling to a consumer goods company, rather than another brewer may also be seen as Diageo wanting to protect the brand from being subsumed into a competitor’s portfolio.
He adds it was “highly unlikely” Heineken would have been able to buy the company as they already account for around 80% of the market.
What next for Diageo in beer?
The overhanging question remains over the future of Diageo’s beer in Africa, and then also the London-listed group’s beer assets in general.
“It would not be surprising if Guinness Ghana Breweries [another African arm in which Diageo owns an 80% stake] was also sold in the future. This would leave East African Breweries as Diageo’s only key operation within Africa,” Baker says.
“However, East African Breweries is profitable, is increasing volume and share in Kenya and Tanzania and is stable in Uganda. [It] is also a key player in the spirits market. East African Breweries also accounts for nearly three-quarters of Diageo volume in Africa.”
Wyborn says he will be surprised if Diageo exits beer entirely any time soon but adds that, over time, the possibility gets bigger and bigger, especially after posting a fall in underlying sales in North America earlier this year.
“There’s no pressure for them to exit the beer assets just yet,” he tells Just Drinks. “Now… if there were to be an event where they need the cash and there was a big strategic play, then it’s conceivable.
“But I struggle to see that happening near term, but longer term, it does become an increasing possibility. And it’s a really attractive asset. Guinness is a brilliant brand, iconic. It would have no shortage of suitors.”
Baker believes the Guinness Nigeria deal should not indicate the group is looking to sell its entire beer business as it is “a perennial question that comes up at every Diageo results presentation and is discussed whenever Diageo makes any realignment of its brewing operations”.
He says the Guinness brand itself is “booming in Europe, especially in the UK and Ireland” and points to the performance of the Guinness 0.0 non-alcoholic variant, which he describes as “one of the most successful brand launches of recent years, with the company investing in a trebling of production capabilities for the non-alcoholic brand”.
Baker adds: “I think it is highly unlikely that Diageo will seek to dispose of the Guinness beer business anytime soon.”
Nevertheless, the deal will inevitably cast some further doubt over Diageo’s Africa plans and East African Breweries will be worth keeping a close eye on. Stirling believes that the deal could “presage an eventual complete exit from beer in Africa”.
In terms of the group’s total beer assets, it seems unlikely that anything major will be announced in the short term, but overhanging questions will no doubt remain as they have for decades.
