FMCG firms grumble as inflationary pressure affects consumer spending
According to the World Bank’s 2017 World Development Indicators (WDI) report, Nigeria has a large population of 190 million people that increases daily. This makes it an attractive space for companies targeting large market, especially Fast Moving Consumer Goods (FMCG) and manufacturing companies. Despite this, companies in the sector have complained of average sales due to decline in consumer’s patronage.
Since the recession experienced in the third quarter of 2016, the Nigerian economy has been on a snail paced recovery to economic abundance and this is evident in both companies and citizens’ profile as citizens’ purchasing power declined, resulting in low sales for companies.
Although data from trading economics show that consumer spending in Nigeria increased by 3.9 percent between the first and second quarters of 2018, key players in the FMCG industry whined about reduced customer patronage, attributed to various reasons ranging from inflationary pressures to constrained income.
Furthermore, despite the heavy cost incurred for production reasons, which include forex and operating cost, which increase the cost of production of the manufacturing companies in the FMCG, the companies are unable to effect an increase in the process of the various products as consumer’s low purchasing power will threaten the possibility of a sell-out.
Nigerian Breweries, a leader in the FMGC industry, recorded a decline of 41.2 percent in its profit for the year 2018, having had N33 billion in 2017 and N19 billion in 2018, the company’s net revenue also reflected a decline of 5.8 percent recording N324.4 billion in 2018 from N344.5 billion realised in 2017.
Jordi Borrut Bel, MD/CEO of NB, stated that the business environment in Nigeria was quite challenging in 2018, adding that economic upheavals that increased inflationary pressures and also constrained consumer’s purchasing power affected beer consumption in 2018, which consequentially affected the volume of sale the company recorded in 2018.
The NB is not the only company bearing the brunt of low consumer purchase as Adesola Sotande-Peters, vice president of finance at Unilever Nigeria, also disclosed at a breakfast meeting that the FMGC was battling with low consumer purchase as the sector was highly dependent on foreign exchange to source raw materials, which increased its cost of production.
Furthermore, consumer’s sensitivity to product prices, especially increased prices, has caused a decline in their purchasing power.
Ranti Adeshola, a sales expert, said, “Economic challenges have constrained consumers income through slashed salaries and some downsizing, therefore consumers do not buy products like before regardless of what price it is. This has affected the volume of sales companies record and in some cases this runs as a loss.”