FMCG firms’ struggle for consumers amid weak demand, saturated market
Despite recovering from recession, according to data from the National Bureau of Statistics (NBS), inflation and slow economic recovery appear to have weakened consumers’ purchasing power. As many small businesses rise to challenge operations in the Fast Moving Consumer Goods (FMCG) sector, they continue to disrupt offerings of several consumer goods’ firms with relatively cheaper prices. With a saturated market, top operators are struggling to maintain their share and profitability, FEMI ADEKOYA writes.
Nigeria’s Fast Moving Consumer Goods sector (FMCG) has faced a lot of challenges in the last four years. For many operators, it has been a sweet-bitter experience as several factors alter their profile at one point or the other.
With many households suffering from the effect of high unemployment and under-employment occasioned by economic downturn, consumers’ purchasing power dropped to a low in recent time, while the industrial sector struggled with the inaccessibility of the dollar alongside delayed policy response that resulted in weak macroeconomic conditions.
To address challenges relating to poor corporate performance, many industrial firms had looked inwards for local alternatives for raw materials and explored different product lines.
On the other hand, the dwindling economic power of many Nigerians has also led to the FMCG sector welcoming new entrepreneurs who are designing products that are cheaper to drive patronage, production, turnover and profit margins.Indeed, the FMCG sector remains highly fragmented and it is dominated by key players who leverage extensively on international alliance.
According to United Capital in its recent weekly review, fast Moving Consumer Goods, FMCG’s are bogged with heavy financing and operating costs, while downstream companies face capped margins.
Confirming this trend, the Manufacturers Association of Nigeria noted that manufacturers are still faced with numerous challenges that are largely responsible for the not too impressive performance of the manufacturing sector and the uncompetitiveness of Nigerian manufactured products.
MAN noted that available data which showed that the Nigerian manufacturing sector was bedevilled by various challenges “manifesting in the form of high inventory of unsold finished products, inadequate electricity supply, frequent increases in electricity tariff in the face of poor services from distribution companies and abnormally high interest rates.
“Others are: high excise duties on some products, inadequate trade facilitation infrastructure, expensive price of natural gas, unfriendly port environment, multiplicity of taxes/levies/fees, exorbitant cost of haulage, congestion at the Lagos seaports arising from the non-functionality of other seaports in the country, high incidence of smuggling and counterfeiting of locally manufactured products, to mention but a few”.
Beyond the challenges, operators noted that the depressed disposable income conditions in the economy necessitated that demand for durable goods continue to be weak as consumers prioritise food and other basics.Indeed, results of the ‘Household Economy Survey’ by Philips Consulting showed that the prevailing economic situation in the country resulted in detrimental effect on the economic security of most citizens and households.
According to the report, the severe drop in crude oil prices, decline in government revenue, and surging inflation rates, in addition to the country’s high poverty (70 per cent) and unemployment (12.1 per cent) rates have had a detrimental effect on the economic security of most citizens and households.
The survey, which assesses the socio-economic state of Nigerian households to determine the proportion of vulnerable households in the country, revealed that over half, 51 per cent of its 5,747 respondents considered their households to be either mildly, moderately or severely food insecure, while over 31 per cent of respondents stated that their households had experienced food insecurity for a few months within the past year.
The report showed that food was also rated as the highest household expenditure by over half (53per cent) of respondents, far ahead of other expenditures such as shelter (15per cent) and transportation (10per cent).For instance, the Chairman, PZ Cussons Nigeria Plc, Kolawole Jamodu confirmed that competition in the Fast Moving Consumer Goods (FMCG) remains strong.
According to the company, its entire global operations have been experiencing challenges in different markets, particularly so in Nigeria where people’s disposable income is lowered due to the upcoming general election in the country.
“Overall, demand remained weak due to the low consumer disposable income, while competition intensified driven by improved availability of foreign currency and stable foreign exchange rates. We will continue to invest in innovative value propositions for the consumer in order to sustain our leadership position”, Jamodu added.
Similarly, Nigerian Breweries noted that it would be consolidating its earnings and profitability through improved consumer value engagement, market penetration, stocking to hedge against market volatility as well as ensuring a balance in the management of input costs and price consumers are willing to pay for its products.
For Unilever, the company reported a turnover of ₦48.13 billion for the period ended June 2018 compared to ₦42.63 billion reported for the period ended June 2017, representing a 13% increase.Though P&G, whose brands include Tide detergent and Bounty paper towel, reported higher quarterly profits amid good performance for several key consumer products, one of the major challenges facing big players in the consumer goods sector, particularly diapers and sanitary towel is a stiff competition in the market.
There are currently more than a dozen brands of diapers and sanitary pads in the country, including Pampers, Molfix, Always, Nice Baby, Angel, Dry Love, Huggies, among others.
Also, May & Baker Nigeria Plc had earlier this year sold its food line to Dufil, a move the company said was necessary towards availing it the opportunity to access the much-needed capital towards the actualisation of its refocused business model, having run at a loss due to the poor revenue realised from the recently divested food arm.
While many of the innovations by the top FMCG companies appear to be losing appeal from consumers, newer entrants continue to challenge the market by appealing to the cost sentiments of many consumers who cannot afford to pay more at the moment.With inflation at over 11% and the purchasing power parity of Nigerians reduced after the recession era, an improved minimum wage is due for review as well as an improved business environment.
The condition of worker across the nation is challenging, and an urgent review will empower workers and increase their purchasing power.For experts at Cordros Securities, there is need for sustained action by managers of the economy in terms of policy implementation.
“In our H2-2018 outlook report, we explored the key drivers of growth, taking cognizance of the peculiarity of the Nigerian economy vis-a-vis the impact of political risk, structural reforms, and the second-order impact of crude oil prices and production on the overall growth.
“In so doing, we modelled our base case scenario for FY-2018 GDP growth at 2.63% y/y, anchored on the fact that businesses will remain uncompetitive due to the absence of meaningful reforms, household consumption will be constrained as consumer wallets remained pressured, and positive policy implementation to drive sturdy non-oil GDP growth is lacking”, the experts added.
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