How shrinking consumer wallet deepens Nigeria’s ‘sachet economy’

The high cost of living in Nigeria and the fragile economy which is squeezing the wallets of consumers are paving the way for the country’s ‘sachet economy’ to expand.

Increasingly more Nigerians are only able to buy less of their usual consumption basket as a result of shrinking purchasing power. As such, companies in the fast-moving consumer goods (FMCG) industry who have been hit by the harsh economic fundamentals are turning to sachet products for survival.

In Africa’s largest economy, it is difficult if not impossible to find an FMCG company that is yet to ‘sachetise’ its products. Even the high-end brands have joined in the struggle for the poor but larger segment of the Nigerian market.

Sachet products or single-serve packs, as they are called in the FMCG industry, are products that can be used or consumed at once or for a single meal. It is common in low-income countries with high poverty rates.

According to analysts, ‘sachetisation’ may be a win-win for both poor Nigerians and the FMCG companies. The smaller sachets enable some of Nigeria’s poor population to afford their everyday household essentials without breaking a bank while the companies are able to increase sales.

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While ‘sachetisation’ is not new in Nigeria as it has been around for a long time, the shrinking income levels and rising poverty in the country have, however, triggered a new level of ‘sachet economy’ in Africa’s most populous nation.

A survey by BuinessDay shows that more affordable, smaller sachets of liquid soap, disinfectant, and alcoholic drinks are now being manufactured compared to a few years ago when only milk, detergent and food spices where produced in sachet quantity.

The Irish cream liqueur, Baileys, which is made by Diageo and is known to be packaged in special bottles of different sizes, is an example of the high-end brands that have joined in the survival race in the Nigerian market through ‘sachetisation’.

“Pepsi now has a product that sells for N50, Dominos are diversifying into shawarma business, Dettol now comes in sachets, and even Baileys,” a Lagos-based market analyst said.

BusinessDay analysis shows that the amount Nigerian FMCG companies retain from each naira of their sales as gross profit fell to its lowest in over five years in the first half of 2020, as declining sales and high costs bite hard on profitability.

The average gross margin for Nestle Nigeria, Cadbury and Unilever, the three FMCGs listed on the Nigerian Stock Exchange, shows only N29 gross profit was made from very N100 sale in the first six months of 2020.

According to market analysts, the recent performance of FMCGs and their drive to churn out sachet products mirrors the impact of a struggling economy and its weak consumer spending, a situation worsened by the COVID-19 pandemic.

“FMCGs are gasping for a breath of fresh air as economic fundamentals threaten to choke them to death. High-end brands are now churning out products at affordable prices to capture the lower segment of the market,” said Yinka Ademuwagun, research analyst, FMCGs, United Capital Plc.

With Nigeria’s current economic situation, the largest economy in Africa can now be best described as one that is stagflated, a situation of poor Nigerians getting poorer in real terms, and the middle class getting thinned out as their dampened purchasing power cannot afford the high cost of goods and services.

The rate at which the prices of goods and services increase in Nigeria (inflation) accelerated to 14.23 percent in October, the highest since March 2018.

Driven by a 1.54 percent jump in the month-on-month changes in general prices (1.48 percent m/m in Sept-2020), the latest inflation data released by the National Bureau of Statistics (NBS) show that price increases were observed across all components of the index.

Described by slow, declining or contracting economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e., inflation), Nigeria’s stagflated economy tips the country into top six most miserable countries globally.

As if Nigeria was not already in a bad place, the COVID-19 pandemic and economic losses from the recent destruction of public and private properties/businesses by hoodlums during the EndSARS protest dealt fresh blow to an already struggling economy.

An evaluation of Nigeria’s microeconomic indicator before the pandemic and the protest that was hijacked by hoodlums exposes how the recent challenges only made what was already a bad situation worse for the economy.

Economic growth in Africa’s most populous nation averaged 1.2 percent between 2015 and 2019. The problem with that is the population grew two times faster at an average of 2.6 percent per annum.