International Breweries Plc Evaluation Essay

Introduction

Since the commencement of operations at the International Breweries Plc in the year 1978, the company has grown tremendously to include new brands as well as the achievement that led to its incorporation into the Nigerian Stock Exchange in the year 1995. However, the company has been encouraging various challenges in the course of its management in the recent years such as the challenge of increasing its revenue, reduce the costs of production as well as make use of capital more efficiently to achieve the needed profitability. In this report, therefore, I am going to cover the present situation at the International Breweries plc as far as how the company has performed as far increasing revenue is concerned and why this situation needs to be improved so that the company can increase its total revenue and thus become more profitable and achieve growth.

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Also, the report will compare how the company has performed since 2016 and the challenges such as competition that it had been experiencing as well as how this challenges can be solved. Additionally, the report will also recommend an innovative idea that if implemented the challenges that hinder revenue growth at the company will be addressed and thus result in an improvement in the levels of revenue realized. Also, the finances that will be used as well as the impact that the implementation of the innovative idea will have financially to the company will be addressed. The report will also bring forth recommendations that need to be approved as well as the resources needed for the implementation of the proposal.

Present Situation at International Breweries Plc and Why It Needs To Be Improved

In the first half of the year 2018, International Breweries Plc which is a subsidiary of the largest brewer in the world AB InBev reported a loss of 7.76 million US dollars down from 6.09 million USD a clear indication that the company has not been doing well as far as profitability is concerned. However, the company reported a revenue increase to 146.88 million in the first quarter an increase that had been attributed to the launches of various new products with the aim of expanding its portfolio ("Unable to start another process," 2018). Therefore, despite the increase in revenue, there was an increase in the losses that the company made in the same quarter thus proving that increased revenue does not automatically mean that a company can make profits. The increase in losses might have been due to an increased cost of production of the additional brands that the company had introduced, and since the increase in their product portfolio means an increase in the cost of producing while the revenue generated remained below, then the losses were bound to increase. Also, the increased losses that had been reported by the company might have been due to the various factors within and without the normal internal and external business environments that might have had an impact on the productivity of the company.

Also, International Breweries Plc continues to face stiff competition from its competitors such as the Nigerian Breweries as well as Guinness Nigeria and these levels of competition continues to affect the productivity at the company and thus result to decreased revenues as well as increased costs of production. The increases in costs may be due to the finances used in advertising the company's products to counter the competition posed by competitors while revenues may reduce when the company opts to invest on launching new products with the aim of countering competition and result in fewer returns to the company. As a way of coping with the competition posed by its competitors, International Breweries Plc launched its premium brand, Budweiser into the Nigerian market with the aim of competing in a market segment that had been dominated by competitors like Guinness Nigeria and Nigerian Breweries. As if the agenda had not been met, International Breweries Plc launched a strong marketing campaign for the through its Trophy Lager to support the Nigerian national team at the 2018 FIFA World Cup in Russia ("Unable to start another process," 2018).

The level of competition posed by the other companies and brands in the market, therefore, had a financial impact to International Breweries Plc as the company reported to have invested 250 million USD on the construction of a new brewery in Sagamu which would take on the competitors in the beer market. All these investments to counter competition increased the costs incurred by the company and reduced its overall revenue for the year as reported by the company that the initiatives in addition to other economic factors dropped the earnings or rather the company's revenue ("Unable to start another process," 2018).

Moreover, the company has reported a decline in revenue growth gap between the years 2018 and 2017 as compared to 2016 and 2017 where the revenue grew to 90.65 million USD from 64.46 million USD due to the merger of all the AB InBev's Nigerian subsidiaries into one in December 2017. Between the same financial years 2016 and 2017, revenue grew by about 40.6 % while gross profit grew by 41.6% and operating profit by 57.3%.

As we all understand, it is the primary aim of every business to make a profit despite it satisfying the needs of its consumers for the business to remain steadfast. This is because without adequate revenue, then the company will not be in apposition to meet its expansion goals as well as cope with the competition posed by its competitors in the beer market as reports from the company have proved that coping with competition as well as expanding needs huge amounts of revenue. Also, the company needs to change the current situation so that it can increase its revenue as the essence of profitability is the revenue and for the company to realize the greater profits that it aims, it then has to raise its revenue. In addition, with increased revenue, the company will attain efficiency, profitability and sustainable success thus conquer its competitors (Eggert, Hogreve, Ulaga, & Muenkhoff, 2013, p. 25).

Therefore, the management at the company needs to look for ways in which it can counter the dynamic business environment it operates to make the company profitable. As a result of this factor, the company has increased its focus on strategic planning in the year 2018 with the sustainable expansion of products offered to customers and cost management with the aim of fostering top-line growth at the company as far as revenue, gross profit and the operating profit are concerned. Also, the company has announced that it is determined to capture new opportunities of growth while it continues to maintain focus on long-term growth prospects for business as well as the announcement of the reconstruction of its board of directors in June this year which would allow for representatives from the newly merged companies into the new international Breweries Plc board.

Effective Discount Pricing Strategies to Reduce Cost on Trade Discounts Issued to Distributors, to Make More Sales by Rewarding Discounts on Incremental Sales

For International Breweries Plc to realize an increase in its revenue base as well as achieve the needed profitability and growth, there is the need for the sales division at the company to review some of the existing trade discount policies so that the company can also benefit from the discounts. Presently, International Breweries Plc has a trade discount policy where the company gives one free product for every 10 cases bought as well as an additional discount of NGN 80 for every case bought and is worth N1800 to a distributor. Additionally, the company sometimes gives a 20% total discount which has proved unsuccessful as the company is paying too much for a discount and having little profits left. This discount policy proves unfavorable for the company and thus the need for the sales division to come up with effective discount pricing strategies that will aid in reducing the cost incurred by the company on trade discounts issued to distributors while enabling the company make more sales by rewarding discounts on incremental sales (Edelman, Jaffe, & Kominers, 2014 p. 41).

Among those effective pricing strategies that can be adopted by International Breweries Plc to reduce the cost on trade discounts while ensuring more sales and thus increased revenue and profits is by paying distributors discounts based on the achievement of an agreed target so that the company can achieve more sales as compared to the preceding years. Through this strategy, International Breweries Plc can partner with whole sellers and reach an agreement whereby, the company agrees to give them certain percentages in discounts when they buy a certain agreed volume of products from the company. by doing so, the company will be in a position to realize more sales as the distributors chase to reach the agreed target of products bought so that they can qualify for the discount (Eggert, Hogreve, Ulaga, & Muenkhoff, 2013 p. 23). Thus, the increased volume of sales will result in an increase in the company's sales revenue which will further result in more profits and growth.

Furthermore, employing this strategy of setting targets for distributors that they need to achieve for them to claim the discount, the company will be encouraging more distributors to deal in huge volumes of its products as by doing so they are assured of discounts. This strategy can therefore also act as a strategy to beat its competitors that may not be giving such discounts to their distributors and this will lead to an increase in the volume of International Breweries Plc's products available in the shelves at the market. In addition, International Breweries Plc can move further to partner with retailers on the same discount pricing strategy whereby, the retailers are awarded an agreed percentage discount when they stock certain agreed volume of the company's products in strategic positions within their premises.

By doing so, the company's products will be more available to the final consumers as compared to those of its competitors, and with such an advantage the company's products are likely to move faster and thus increase the sales achieved by the company (Moller & Watanabe, 2010, p. 13). Therefore, with such effective discounting strategies the company will achieve more sales at a reduced cost and thus increase its sales revenue and profits as compared to when the company uses the existing discount policy where distributors get high discounts based on small volumes of goods purchased and thus turning unhelpful to the business as it pays too much on discounts.

Financial Justification

If International Breweries Plc adopts the above discount pricing strategy that is aimed at reducing the cost of trade discount issued to distributors with the aim of making more sales through the reward of discounts on incremental sales, then the company will be saving a lot of income that they previously used with the existing discounting policy that has proved unfavorable. For instance, using the current discount policy, the company spends 3.32 ZAR inform of discounts to distributors on every case worth 74.6 ZAR purchased plus an additional 20% which sums to 14.92 ZAR and in the instances where the distributor purchases ten cases of the product, he or she is entitled to an additional free product worth 74.6 ZAR. All these discounts total to 18.24 ZAR for a single case purchased under the existing discount policy, leaving the company with only 58.16 ZAR as revenue for a single case. For distributors who buy ten cases, the total amount that goes inform of disco...