Production costs, competition strain Ingwebu

BULAWAYO Municipal Commercial Undertaking's beverages producer, Ingwebu Breweries, says rising costs of production coupled with increasing competition strained its earnings, which saw profit dropping by 24 percent to US$174 066 in the first quarter ended March 31 against a budget of US$228 592.

Despite viability concerns underpinned by falling demand for its products and the high cost of operating its antiquated equipment over the years, Ingwebu has recently pitched a turnaround strategy aimed at consolidating market share and growing revenue for the local authority.

In 2019, BCC announced a plan to privatise Ingwebu Breweries as part of a strategy to turn around the previously loss-making commercial undertaking into a financially sound private company.

In its first quarter report, Ingwebu Breweries said business operations were mainly affected by a prolonged long-spell of poor quality production experienced in the fourth quarter of 2021.

However, the report said the production challenges have since been addressed with notable feedback received from consumers.

"The business managed to post a profit of US$174 066 for the period under review against $228 592 and previous profit of US$215 367," said the company in a report seen by Business Chronicle.

"The 24 percent profit decline against budget and 19 percent against previous quarter was as a result of a decline in volumes and increase in costs due to the rise in fuel prices."

During the period under review, Ingwebu said its sorghum beer unit managed to sell 8,4 million litres against a budget of 10 million litres and previous quarter volumes of 9,9 million litres.

The product, however, faces stiff competition in the market from Delta Beverages, which implemented aggressive measures to gain more market share in the period under review, said the company.

To consolidate its market share, Ingwebu said a three-year strategic plan anchored on diversification, growth and services has been put in place.

Under its diversification model, the company said it will focus on additional product lines and new market segments while under growth it seeks to focus on geographical expansion, production capacity and product range.

It said the production of mahewu slowed down in the first quarter due to the unavailability of packaging materials.

"This resulted in the organisation managing to sell 27 865 cases against a budget of 36 985 cases and a previous year's first quarter of  48 378 cases.

"The imported packaging materials have proven to be expensive and made it difficult for the organisation to produce and sell the mahewu product at a competitive price," reads the report.

The highest sales were recorded in January with 21 840 cases, February (4 406) and only 1 619 cases were sold in March.

"The first quarter closed 23 percent below budget and 42 percent below last year. The first quarter was affected by shortage of raw materials and containers mainly in February and March, which affected product availability in the market," it said.

"Banana flavour continues to be the highest contributor as it closed the first quarter with a contribution of 36 percent, Traditional flavour (24 percent), Extra malt (24 percent), and Peach Apricot 15 percent to total first quarter mahewu sales volumes."

Ingwebu said the focus for the second quarter will be on improving mahewu availability in the market and driving more volumes into the outlets or markets that pay cash.

Meanwhile, consolidated turnover for the first quarter at US$2,2 million was 23 percent below budget and eleven percent below first quarter results.

Gross profit for the quarter which was at US$1,4 million was 20 percent below budget and two percent below first quarter results.

In addition to selling 68 percent of its products in foreign currency, Ingwebu Breweries also managed to acquire three chillers, which will enhance sales growth and visibility of products.

"The organisation plans to acquire two chillers every month from the second quarter going forward. So far, the organisation has managed to buy 10 chillers in total. This will enhance sales growth and visibility for our Mahewu product in modern trade outlets," said the company.

In terms of market share visibility, by the end of the quarter under review, Matabeleland had 36 percent, Masvingo (two percent), Zvishavane (six percent), Gweru (five percent) and Kwekwe had three percent.

Ingwebu Breweries has been in the brewery business for over a century.