Dutch brewing giant, Heineken Nigerian unit is reportedly planning to raise prices of its product in the second half of 2019, as the company prepares for the second phase increased Government taxes on alcoholic beverages.
The plan to increase the brand’s price was disclosed by the top management of Nigerian Breweries Plc, the company that manufacturers and markets Heineken in Nigeria.
“WE NEED TO INCREASE PRICES TO COMPENSATE FOR INFLATION PRESSURE AND THE IMPACTS OF EXCISE TAX.”
According to the company’s Chairman of board, Kolawole Jamodu, brewers expect a jump in excise duties by 67 percent to N35 ($0.10) per liter in the second half of the year, as the Government enters the second phase of tax increases on alcoholic beverages.
Recap on Nigeria’s excise duty on alcohol – Back in June 2018, the Federal Government of Nigeria under the leadership of President Mohammadu Buhari, approved new excise duty rates for the alcoholic beverages in Nigeria.
In line wirh the new excise duty, the Government maintains the former ad-valorem rate of 20 percent and introduce additional specific rates with the implementation to be spread over a three-year period to also reasonably reduce the impact on prices.
while FG granted a 90 days ultimatum before the commencement of the newly implemented taxes, the duty rates were planned to spread for three phases from 2018-2020.
According to the former Minister of Finance, Mrs. Kemi Adeosun, the upward review of the excise duty rates for alcoholic beverages and tobacco was not targeted at local manufacturers, but aimed at achieving a dual benefit of raising the Government’s fiscal revenues and reducing the health hazards associated with tobacco consumption and alcohol abuse.
The second phase of taxes is still uncertain – From the look of things, big brands in the alcohol industry such as Heineken, are anticipating the implementation of the second phase of the excise taxes as structured by the government. However, it is still uncertain if the Nigerian government would proceed with the periodic increase in alcohol taxes.
Nairametrics had earlier reported that the FG is set to embark on a downward review of 2018 excise duties imposed on products made by brewing companies in Nigeria.
The purported downward review of the taxes by FG was to improve sales of the main alcoholic beverage producers in Nigeria. Some of the brewers are said to havd struggle with sales due to the contraction witnessed in the economy since 2016.
In an email response to questions received from Paul Abechi (the spoke person for the Finance Minister) in April, it was disclosed that the difficulty witnessed by the alcoholic beverage companies is now forcing the Government to rethink the taxes earlier imposed.
“FOLLOWING CONTINUED CONSULTATION BY THE GOVERNMENT, IT HAS BEEN DECIDED AND APPROVED THAT THE EXCISE DUTIES ON WINES AND SPIRIT SHOULD BE REVIEWED. THE PROCESS HAS BEEN SET IN MOTION THROUGH THE RELEVANT DEPARTMENTS AND INTER-MINISTERIAL COMMITTEES AND IT WILL SOON RESOLVE THE MATTER IN A MUTUALLY BENEFITING WAY.”
Despite this, Heineken is preparing itself and has announced the impending move to drive prices up in order to cover for the taxes
Can Heineken afford to increase beer prices? Just a month after the implementation of the excise duty in 2018, Heineken posted a profit of .1 percent to €950 million ($1.1 billion) from January to June 2018, while revenue hit €10.8 billion, up 4.2 percent from the same period last year.
Overall, Nigerian Breweries Plc, the maker of Heineken, posted a 22% decline in profit for half year 2018. The N19.4 billion Profit after Tax in 2018 recorded by the company during the period under review, was lower than the N31.6 billion recorded in 2017; thereby representing a 41 percent profit decline.
According to the company, the new excise duty regime and higher tariff rate were responsible for the poor half-year financial report. Hence, another price increase could potentially drive down sales and further affect the company’s revenue and profit.
Heineken is arguably one of the world’s top beer brands. However, the brand continues to face tough challenges in Nigeria due to competition from other brands and the slow growth in the economy.
Nairametrics earlier reported a 1 percent decline in the consumption of Heineken in Nigeria in half of 2018 due to increased competition in the beer market.
With all these in perspective, it may be a wrong timing for any upward review of prices for a product facing such stiff competitions in the market.