• Friday, July 12, 2024
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BusinessDay

The cake is shrinking: Marketing battles in Nigeria’s economy

The Nigerian media has been buzzing with news of major foreign companies exiting the market, sparking concerns among citizens about the economic implications. From a marketing lens, this corporate exodus can be viewed as a consequence of Nigeria’s sputtering economy and the ensuing battle for shrinking market categories.

At the core of the issue is the phenomenon of the “shrinking cake” – the reality that many consumer product categories are stagnant or declining, even as the number of competitors vying for those finite markets increases. It has devolved into a vicious “fight to finish” as businesses grapple to maintain their slice of the proverbial pie.

To illustrate, take the dairy and vegetable oil segments, which have contracted over the past five years. Or examine the carbonated soft drink (CSD) category, which incredibly grew from just two major players in 2014 to over seven rivals by 2024 – yet without a commensurate expansion in overall market size. This saturation of brands chasing limited consumer demand has fueled intensely cutthroat competition, such as the fierce “Cola Wars” of recent years.

The root cause lies in stunted consumer purchasing power. While commodity prices have soared – a unit of egg skyrocketing from N30 to over N150 between 2019 and 2024 – wages have stagnated for most Nigerians. Civil servants have seen no raises, and even private sector workers’ incomes have lagged far behind inflation.

Predictably, households are being forced to radically prioritize spending and seek lower-cost substitutes wherever possible. Bottled water get replaced by sachet water or dispenser bottles. Soft drinks give way to plain water. Diapers get swapped for cloth napkins and seasoning cubes abandoned for natural locust bean seasonings. Meat portions shrink or disappear entirely from meals.

These compensating consumer behaviors have drained sales from major branded product categories. And as demand contracts, the number of corporate failures have escalated. The diaper segment offers a sobering example – first Procter & Gamble’s exited the country, followed recently by Huggies shutting its local factory, both unable to sustain profits amid eroding consumer spend.

At a certain point, when sales volumes deteriorate below minimum sustainable output, manufacturers are compelled to cease operations entirely. After exhausting all cost-cutting levers, the only recourse is to permanently shut underperforming facilities and exit unattractive categories and markets.

This loss of major industry players is ultimately a reflection of Nigeria’s broader economic stagnation and failure to cultivate a vibrant, growing consumer class. With sluggish GDP growth and incomes depressed, the expansionary spending required to float all the existing product categories and brands is sorely lacking.

The solution, from a marketing perspective, is straightforward yet admittedly easier said than done – Nigeria needs genuine economic resurgence to resuscitate consumer purchasing power. Only when incomes and consumption levels rise in tandem can corporations reasonably expect to sell higher volumes and justify maintaining or enlarging their presence.

Until living standards and aggregate demand start exhibiting meaningful, sustained growth, the nation’s consumer market will remain a ferocious zero-sum battleground, with the number of combatants continually outstripping the size of the proverbial cake. Departures and casualties are simply an inevitable outcome of that unstable, unsustainable equilibrium.

For companies still committed to the Nigerian market, the implied strategy is to hunker down and aggressively defend their most cherished slices, while seeking ways to grow the overall pie through creative product innovations, judicious cost reductions and inspired brand-building efforts. Abandoning the field entirely to competitors should be an absolute last resort.

Ultimately, whether more corporate diaspora looms, or alternatively a renaissance of new investment and growth, hinges on Nigeria’s policymakers and their ability to kindle an economic revival that enlarges the consumer market. Only then can the great shrinking cake become an expansive, palatable prospect for businesses once again.

Oluwole Dada is the General Manager at SecureID Limited, Africa;s largest smart card manufacturing company in Nigeria.

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