Battling the fallout from rising inflation and soaring cost of doing business, fast-moving consumer goods (FMCG) companies in Nigeria are increasingly turning to smaller packages for solace.
FMCG companies are adopting various strategies to prevent prices, which have been on the rise since the start of the year, from adversely impacting their sales.
Some are repackaging products into smaller units (sachets) to make them more affordable. Although this is not a new trend, high inflation rate is forcing many to adopt the practice as weak consumer purchasing power means higher demand for food and groceries in smaller packages.
“With food inflation rising consistently since the start of the year, retailers and consumers have been optimising for what they can afford,” Ignatius Akpabio, chief growth officer at TradeDepot, said.
He said everyone is trying to get the best value for their money, which often means buying smaller quantities more often. “Many brands are now offering smaller packages of their products or adjusting the size of existing products to accommodate consumer sensitivity to rising prices.”
Akpabio cited a leading chocolate beverage manufacturer which recently changed the configuration of its 20g packs from 240 in a case to 200.
“That slightly reduced the price of that product, enabling it to remain its fastest-moving stock keeping unit on the market. Even though they have larger pack sizes, the smaller packs continue to move significantly faster,” he added.
‘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.
Among the brewers, industry players introduced smaller units of 45cl packages in the malt category and “pet lines” for the spirits category, according to a recent consumer goods report by Cordros Securities.
The report said food and home personal care producers have also strengthened their positioning in the bottom segment of the pyramid in response to consumers’ growing preference for affordability.
“With consumers’ high level of acceptance, we believe the new wave of ‘sachetisation’ in the consumer goods sector will persist as producers strive to maintain their market share,” it said.
Sachetisation is not only restricted to the food or FMCG space but is also found in education, insurance and banking, said Uchenna Uzo, a faculty director at Lagos Business School. “People are looking at breaking things into smaller units so that they are more affordable.”
The country’s headline inflation rate accelerated for the ninth consecutive month to 21.09 percent in October 2022, the highest in 17 years, from 15.60 percent in January, according to the National Bureau of Statistics (NBS).
Food inflation, which is also at the highest in 17 years, increased for the eighth consecutive month to 23.72 percent in October from 17.11 percent in February.
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.
“The country has been particularly vulnerable to global shortages of supply and, subsequently, the rising importation costs of vital commodities like fuel, wheat, and fertilisers,” said Christele Chokossa, a consultant at Euromonitor International.
She said the situation has been worsened by the steady depletion of the country’s foreign exchange reserves, translating into persisting naira depreciation.
“Such additional costs are often passed to average consumers, who, on the other hand, are responding by cutting out on discretionary spending and focusing on essential products,” she said.
Folake Babatunde, a secondary school teacher in Lagos, told BusinessDay that she cut down on her airtime in order to afford other essential items.
“My salary is still the same despite the surge in prices. So, I had to cut down on my monthly data airtime to N1,500 from N6,000 to enable me to buy more of other essential items,” she said.
A consumer pulse survey conducted in October 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.
Uzo said sachetisation can be risky for business. “Its risks associated with products, regulation, adoption and brand erosion can cripple efforts to bundle in sachets.”
“However, sachetisation has the potential to support stakeholders managing premium brands to increase consumption habits and change the nature of consumer engagement,” he added.
