BusinessDay

Businesses adapt to survive as cost surges

More businesses in Nigeria, especially in the fast-moving consumer goods (FMCG) industry, are embracing ‘sachetisation’ as part of their strategies in a bid to prevent rising inflation from impacting their sales.

This is because prices, which are at their highest level in 17 years, have further weakened the purchasing power of cash-strapped consumers, forcing them to cut their budget spend by going for products that are more affordable.

“The information from our platform suggests that consumers are moving more towards smaller packs for portion control, rationing and overall better management of what they have on their shelves,” Ignatius Akpabio, chief growth officer at TradeDepot, said.

He said many brands are now offering smaller packages of their products or adjusting the size of existing products to accommodate consumers’ sensitivity to rising prices.

“For example, one leading chocolate beverage manufacturer recently changed the configuration of its 20g packs from 240 in a case to 200,” he said.

Akpabio added that there is a similar story with tomato paste where smaller packs are moving much faster than the larger packs. “Everyone is trying to get the best value for their money and this often means buying smaller quantities more often.”

Sachetisation’, which is colloquially used for packaging of products in smaller packs, has gained momentum in recent years in Africa’s biggest economy. Many consumer products such as detergent, shampoo, powdered milk, and beverages are now in single-use packages.

It is used by businesses to capture the larger segment of the economy in a bid to grow market share, stay competitive and bolster demand for their products.

According to the National Bureau of Statistics (NBS), Nigeria’s inflation rate surged to 21.34 percent in December 2022, the highest in 17 years from 21.47 percent in the previous month.

The surge in inflation rate led to a 12 percent increase in household consumption expenditure to N27.3 trillion in the first half of 2022, the highest in five years, from N24.3 trillion in the corresponding period of 2021, according to the NBS.

This has squeezed consumers’ purchasing power, making many poorer. The multidimensional poverty index report released last month shows that 133 million people are poor in health, education and two other dimensions.

Read also: The high cost of living

“As consumers continue downtrading from premium brands to cheaper and unbranded products, the bigger players in the sector have responded by repackaging their products into smaller, affordable product units (sachets) to meet the demands of low-end consumers,” said a recent consumer goods report by Cordros Securities.

It said as a result, these companies are now able to offer their products at very competitive retail prices, thereby making inroads into the value segment of the market.

A consumer pulse survey conducted in October last year by Pierrine Consulting, a specialist tech-first marketing research and strategy firm, revealed that when asked about their expectation of brands, most of the respondents said they wanted products in smaller sizes at lower prices.

“Thirty-seven percent of them want brands to create smaller sizes at lower prices, 23 percent expect them to maintain quantity and maintain price, and 15 percent expect brands to reduce quantity and maintain price,” it said.

Damilola Adewale, a Lagos-based economic analyst, said companies have restructured their portfolio by doing sachetisation, it gives a sense of market penetration such that their products are now affordable to the larger and poorer segment of the economy.

“It is also a way that encourages small manufacturers to enter the FMCG market space to actually try and showcase their product offerings which is usually dominated by the big players such as Nestle and Unilever, etc.,” he said.

Temitope Omosuyi, investment strategy analyst at Afrinvest Limited, said companies become profitable using the strategy as they are able to capture more income classes in the economy.

“The value chain of sachetisation will have a multiplier effect on the country’s gross domestic product. More production and buying of smaller units of items will automatically improve economic activities and consumption,” he said.

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