Nigeria’s inflation rose by 17.5 percent in May, leading to a spike in production and distribution costs. Hence, Nigeria’s fast-moving consumer goods sector has seen a surge in its selling, marketing, and distribution expenses. A review of the financials of the major players in this sector such as the Nigerian Breweries, Nestle, International Breweries, Guinness, NASCON, UACN, Cadbury, Unilever, and Dangote Sugar showed a 41 percent increase in distribution costs.
According to the companies’ financials released by the Nigerian Exchange Group, quoted FMCG companies incurred a combined marketing and distribution cost of N61.48 billion in March 2022 compared to N43.49 billion in March 2021.
“The major headwind faced by FMCG companies remains the rising input costs as a result of the consistent hike in the costs of raw materials like wheat, sugar, corn, soybean, barley, sorghum, and skimmed milk, among others. The costs are subsequently transferred to the final consumers,” Olufisayo Ademilua, an equity research analyst with CardinalStone Securities, said.
Ademilua added that the “distribution cost is mainly attributed to inflation”, noting that there was cost efficiency across most FMCGs following the decline in their Opex to sales year on year. The decline in OPEX to sales ratio was a trickle-down effect of robust revenue growth. According to her, companies such as Nestle, Dangote Sugar, UACN witnessed lower OPEX -sales ratios, while Nigeria Breweries’ ratio advanced year on year.
“Volume is growing as revenue is improving, and distribution cost is not affected by just price increase. When volume increases, there will be need for more movement of the products to the final consumers. Combining that with diesel cost that is surging by the day, will definitely lead to a rise in marketing and distribution cost,” Ayodeji Ajilore, investment research analyst with ARM Securities, said.
Nigerian Breweries
Nigerian Breweries ranked first with the highest amount of money spent as marketing and distribution expenses. The brewery giant saw its marketing and distribution expenses surge 62 percent to N32.13 billion from N19.8 billion in March 2021.
The cost of sales increased to N75.32 billion in March this year, 14 percent higher than N66 billion in the prior year. Administrative expenses grew to N7.45 billion in March 2022, up 30 percent compared with N5.74 billion same period last year. Nigerian Breweries Plc is the largest brewing company in Nigeria which serves the Nigerian and West African markets.
Nestle
Nestle ranked second as its marketing and distribution expenses hit N14.22 billion in March 2022, a 28 percent increase from N11.1 billion in the previous year. The consumer goods company saw its cost of sales climb 27 percent to N66.98 billion from N52.51 billion in March 2021.
Administrative expenses dropped 21 percent to N2.61 billion, as against N3.32 billion expended in the previous year. Nestle Nigeria Plc is a publicly listed food and beverage specialty company headquartered in Lagos. It is mostly owned by a holding company based in Switzerland and have ties to the company Tolaram Group.
Guinness
Guinness ranked fourth with its marketing and distribution expenses which stood at N9.24 billion in March 2022, a 19 percent jump from N7.75 billion in March 2021. Cost of sales climbed 3 percent to reach N29.64 billion, coming from N28.76 billion in comparable period in 2021.
The brewery company was able to cut down its administrative expenses by 12.8 percent to N2.11 billion from N2.42 billion in the previous year. Guinness is an Irish dry stout that originated in the brewery of Arthur Guinness at St. James’s Gate, Dublin, Ireland, in 1759. It is one of the most successful alcoholic brands worldwide, brewed in almost 50 countries, and available in over 120 other countries.
NASCON Allied Industries
NASCON ranked fifth with its distribution cost at N1.88 billion in March 2022, a 7 percent increase from N1.68 billion in comparable period in 2021. The cost of sales grew 62.6 percent to N8 billion in March 2022 from N4.92 billion in March 2021.
Administrative expenses climbed 6 percent to N711.5 million in March 2022 as against N670.6 million in the comparable period last year. NASCON Allied Industries Plc produces salt, vegetable oil, tomato paste, and seasoning products. The company has since evolved with additional business lines to include vegetable oil, tomato paste and seasoning with production facilities in Lagos State (Apapa and Oregun), Ogun State (Ota), and Rivers State (Port Harcourt).
United Africa Company of Nigeria (UACN)
UACN ranked sixth with its selling and distribution expenses at N1.73 billion, showing a 21.8 percent increase from N1.42 billion in the previous year. The cost of sales jumped 25 percent to N22.59 billion, as against N18.01 billion in March 2021.
Administrative expenses climbed 29 percent to N1.92 billion in March 2022 from N1.49 billion in the same period last year. The United Africa Company of Nigeria is a Nigerian publicly listed company based in Lagos. Its areas of operations include manufacturing, services, logistics and warehousing, agricultural, and real estate. UACN’s food operations include UAC franchising, UAC restaurants, and UAC dairies.
Cadbury
Cadbury ranked seventh with its selling and distribution expenses at N1.01 billion in March 2022, a 13 percent increase over N892.7 million in March 2021. The cost of sales rose to N9.55 billion in March 2022, a 28.5 percent increase from N7.43 billion in the prior year.
Administrative expenses jumped 13.5 percent to N311.6 million, coming from N274.4 million in March 2021. Cadbury, formerly Cadbury’s and Cadbury Schweppes, is a British multinational confectionery company fully owned by Mondelez International since 2010. It is the second largest confectionery brand in the world after Mars.
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Unilever
Unilever’s selling and distribution expenses climbed 38 percent to N1.01 billion in March 2022 from N727.8 million in similar period of the previous year. The cost of sales grew by 8.6 percent to N13.38 billion, coming from N12.32 billion in March 2021.
Marketing and administrative expenses jumped 8 percent to N4.05 billion, from N3.73 billion in the previous year. Unilever plc is a British multinational consumer goods company with headquarters in London. Unilever products include food, condiments, ice cream, cleaning agents, beauty products, and personal care.
Dangote Sugar
Dangote Sugar saw its selling and distribution expenses rise to N260.8 million, a huge 110 percent over N124.1 million in March 2021. Cost of sales climbed 52 percent to N74.98 billion in March 2022 from N49.35 billion in March 2021.
Similarly, Dangote Sugar’s administrative expenses jumped 52 percent to N2.24 billion from N2.13 billion. Dangote Sugar is a brand that has made a remarkable impact on the Nigerian sugar sector. It operates to international standards in food production, health and safety and have been honoured with numerous awards for their quality standards.
“The surge in the distribution cost was largely down to higher logistics costs stemming from rising diesel prices. From Q2-2022, diesel cost have further surged higher and would further impact on logistics and distribution costs for Nigerian companies including FMCGs. The impact is expected to remain through the rest of 2022 as long as oil prices and diesel costs remain elevated,” said Ayorinde Akinloye, a consumer analyst at United Capital pl
