Premium Fast-Moving Consumer Goods (FMCGs) companies in Nigeria are targeting the larger segment of the economy by packaging their products into smaller sachets at affordable prices in a bid to grow market share and bolster demand for their products.
BusinessDay findings at some retail stores across Lagos showed the presence of new premium products in sachet packages. Amongst these are Dettol, Morning Fresh dishwashing soap and Baileys Delight alcoholic drink. The practice is common among FMCGs, including PZ Cussons, FrieslandCampina WAMCO, Flour Mills of Nigeria, Honeywell, De-United Foods, among others. Noodles produced by De-United Foods, for instance, have prices ranging from N200 to N50 per sachet.
Ireti Obe, a retailer at Agege, said consumers find it more economical to use smaller packs than the plastic or bottled ones which are more expensive.
A 165ml bottle of Dettol costs around N600-700, while the same product in a 15ml sachet goes for N50. Also, a 75cl Baileys Delight drink costs N1,400-N1,500 while the 45ml costs N50.
“Right now, the Baileys sachet drink is finished, but I plan to get another batch soon because people are really rushing it,” Tolani Olabanke, a sachet alcoholic drinks seller, said.
Experts say with the premium brands now keying into the sachet market, ‘sachetisation’ of products is now the new normal, given the enormous pressure on households’ disposable income.
According to Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, the country’s weaker purchasing power situation has made it difficult for FMCGs to implement price increases.
“Nevertheless, many of them have gone ahead to raise prices (at rates much smaller than in 2016/17). However, in a bid to keep many of their products affordable, some of them have resorted to ‘sachetisation’ of their products in what we consider another wave of the sachet economy,” Akinloye said.
Sachet economy refers to the practice of buying consumer products such as detergent, shampoo, powdered milk, or beverages in single-use packages. It encourages the consumption of small units of products and is appropriate for consumers with little savings and in poorer communities.
Industry players in the consumer goods sector have been facing myriads of challenges from fragile economic growth to unfavourable protectionist policies of government such as border closure, foreign exchange restriction for food imports, and 50 percent increment in Value Added Tax rate from 5 percent to 7.5 percent.
The pressures have forced the Nigerian consumer firms to respond by implementing staggering price increases on their products, which make unlisted and smaller consumer companies to take advantage by producing alternate market of vast discount and unbranded alternatives.
Also, the inflationary pressure has squeezed the revenue and profit performances of listed FMCGs which are simultaneously facing higher costs and lower demand caused by COVID-19 and slowing economy. A review of the 2020 first nine months’ financial performance of leading players in the consumer goods sector shows they were largely underwhelming.
International Breweries reported a 1.5 percent revenue drop from N97.3 billion in the first nine months of 2019 to N95.8 billion in the same period of 2020. Cadbury had an 11 percent decline to N25.8 billion from N28.9 billion, while PZ Cussons saw revenue plunge 10 percent to N67 billion. PZ has a unique calendar that runs from May 2019 to May 2020.
“Companies that are producing these products are seeing a loss of market share, lower demand and slower sales, because the middle class and the high net worth individuals who are able to afford their product easily are going through tough economic conditions and as a result, the demand from that segment of the population is no longer robust,” Abiodun Keripe, head of research at Afrinvest Limited, said.
“So they need to re-strategise to ensure that even the lower end of the market can also find it affordable,” he said.
Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank, noted that sachetisation of products is the best strategy for the firms to capture the larger segment of the market as it is mostly driven by the informal sector who earn their income in wages.
The global COVID-19 pandemic has led to many businesses cutting the workforce or implementing steep salary cuts. In addition, the economy for the second time in five years is in recession and the wholesale and retail trade sector, Nigeria’s second-biggest sector by output contribution, is still in recession since the second quarter of 2019.
Also, headline inflation, which serves as a measure of consumer prices, rose at a faster pace for 14 consecutive months, reaching a 31-month high of 14.23 percent in October, according to data from the National Bureau of Statistics (NBS), while Nigeria’s unemployment rate came to 27 percent in Q2 of 2020, as more and more were rendered jobless from the impact of the pandemic. Nearly half of the population are extremely poor and cannot afford big bottles and packs.
“It is the new normal and also signposts weaker purchasing power among Nigerian households. So, the fact that they are rebranding their product portfolio to accommodate cheaper brands is to gain market share and also to boost demand for their products,” Damilola Adewale, a Lagos-based economist, said.
Around 82.9 million Nigerians are extremely poor, constituting 40.1 percent of the total population with real per capita expenditures below N137,430 in 2019, according to NBS’ Poverty and Inequality report in May 2020. The World Bank predicted that there would be 95.7 million Nigerians living below the poverty line by 2022.
