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Nestle bets on ‘affordability’ to retain consumers as cost of sales dents 2020 profit

....Shareholders approve N35.5 final dividend

As consumer firms devise ways to ensure patronage of their products not only remain steady, but also increase, Nestle Nigeria is counting on affordability of its products to remain competitive in an economy challenged by shrinking wallets.

While ‘sachetisation’ is increasingly popular as companies make smaller variants of products that are more affordable, Nestle describes its ‘single serve’ offerings, which have been around for some time as the thrust of its response to diminishing purchasing power.

“Affordability remains a key part of our business,” Wassim Elhusseini, managing director and CEO of Nestlé Nigeria Plc told BusinessDay on the sidelines of the company’s annual general meeting yesterday. “Of course, without compromising nutritional and quality aspects of the products, packaging, the whole delivery and experience around the product.”

He emphasised that affordability is the ‘magic word’ guiding the company’s operations in Nigeria, while also pursuing the larger vision of “enhancing the quality of life and contributing to healthier future through affordable and accessible products.”

In Nigeria, almost every product category by the company has what is called the single serve, which depending on the product could range from 30g to 100g. These, he says are very important for consumers especially with the shrinking purchasing power. The key focus remains meeting consumers at the right price points, which the company calls the magic price point, whether it is N50 or N100 or in between.

Commenting on the company’s 2020 financial performance, which was the essence of the AGM, he gave insights into why the company saw a decline in its profits despite recording more revenue.

According to Elhusseini, its operations saw unprecedented surge in costs and first was the increase in raw materials and packaging, then shipping as well, with the company having to airfreight sometimes just to ensure it had the materials needed to produce. Lastly was logistics within the country, which came at higher than usual costs.

“During COVID, we lost some of our vendors and retailers who closed shop,” he said. For the company to find alternative routes to market and expand geographically to compensate for lost channels, its cost of sales had to increase.

For the 2020 financial year, the company’s board proposed a final dividend of N35.50 compared to N45 per share in 2019, and shareholders approved the proposal during the AGM.

It would be recalled from the company’s financials (earlier made public) that revenue grew one percent to N287 billion in 2020 but the cost of sales was higher. It rose by 7.7 percent to N167.8 billion in 2020 compared to N155.7 billion in the previous year.

Invariably, perhaps, the firm’s profit after tax plunged 14 percent to N39.2 billion in 2020 from N45.6 billion in 2019.

BusinessDay also asked the Nestle MD if Nigerian consumers had anything to worry about, in view of a recent report that suggested some of the company’s products (in certain places) did not meet the health standards claimed.

“I don’t think these concerns are valid to any market to start with because I personally believe the numbers reported in that article are not accurate because they excluded everything under the nutrition umbrella from Nestle portfolio,” said Elhusseini. Coming to Nigeria, he explained that 80 percent of the company’s portfolio is fortified with micronutrients and it keeps improving and there is no reason for anyone to worry about the healthiness and quality of its products.

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