International Breweries Plc Present Situation and the Need for Change

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 of being incorporated into the Nigerian Stock Exchange in the year 1995. However, the company has been encountering various challenges in the course of its management in the recent years such as the challenge of increasing its revenue, reducing the costs of production, competition as well as making use of capital more efficiently to achieve the needed profitability. This report will, therefore, be addressing the board of management on the present situation at the International Breweries plc on how the company has performed as far increasing its 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. Also, the report will compare how the company has performed in the last three years and the challenges such as competition that it had been experiencing as well as how these 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.

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Present Situation and the Need for Change

In the first half of the year 2018, International Breweries Plc reported a loss of 114.9 million South African Rands from 90.2 million ZAR, 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 2.2 billion ZAR in the first quarter, an increase that had been attributed to the launch of various new products with the aim of expanding its portfolio ("International Breweries Plc," n.d.). The increase in losses was due to an increased cost of production of the additional brands that the company had introduced, and since the increase in product portfolio meant an increase in the cost of producing while the revenue generated remained low. Also, the increased losses that had been reported by the company were caused by the various factors within and without the normal internal and external business environments that 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 continue to affect the productivity at the company and thus result to decreased revenues as well as increased costs of production. The increases in costs were due to the finances used in advertising the company's products to counter the competition posed by competitors while revenues reduced when the company opted 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 ("International Breweries Plc," n.d.). Moreover, the company has reported a decline in revenue growth gap between the years 2018 and 2017 as compared to 2016 and 2017 due to the merger of all the AB InBev's Nigerian subsidiaries into one in December 2017. Between the same financial years of 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 cannot be in apposition to meet its expansion goals as well as cope with the competition posed by its competitors in the beer market. This is because as reports from the company have proved, coping with competition as well as expansion 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 to increase 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, there is the need for the company to capture new opportunities for growth while continuing to maintain focus on long-term growth prospects for business.

Effective Discount Pricing Strategies to Reduce Cost on Trade Discounts Issued to Distributors

Current Discount Policy

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 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 3.32 ZAR for every case bought and is worth 74.6 ZAR 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).

New Discount Strategy

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 wholesalers 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.

The effectiveness of the New Discount Policy

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 discounts is 182.4 ZAR which is the sum of the discount for each of the ten cases plus an additional 74.6 ZAR, bringing to a total discount of 257 ZAR for products worth 746 ZAR representing a percentage of 34.5% in discounts. Therefore, this discount policy proves unfavorable for the company.

On the other hand, if International Breweries Plc adopts my strategy, then the company will have to agree with distributors on the discount that the company will give based on the volume of purchases. For instance, if the company agrees with the distributors that for every case worth 74.6 ZAR, the distributor gets a discount of 5%, a...