Unilever Nigeria is a household brand and one of the foremost leaders in the fast moving consumer goods industry. However, over the years, its market position and consumer loyalty have waned, leading to a decline in the firm’s margins.
Unilever, which was established in 1923, has enjoyed a large market share with the manufacture and marketing of foods and food ingredients, as well as home and personal care products.
Unilever sources a lot of raw materials locally, including palm oil, local herbs, spices and packaging materials, which it uses for soaps, seasoning cubes and other products.
However, economic headwinds and low purchasing power of consumers have placed the firm in a position where it struggles. In 2018, the firm sold its spreads business which produced Flora, Blue Band and Rama owing to the segment’s underperformance. The company then decided to focus more on other better-performing categories.
Analysis of Unilever’s financials for the 2019 full year shows that the firm recorded a series of declines year-on-year in both sales and revenue across its major segments, especially in home and personal care products.
Its foods sector contributed N31 billion to its revenue. This could be attributed to the recent introduction of the Lipton Iced Tea into the Nigerian market as well as its Knorr product, which has been able to retain a leading position in the seasoning cube market.
The company’s revenue dropped significantly by 35 percent to N60 billion in the full year of 2019 from the N92 billion realised in the previous year. Its gross profit also dropped by 78 percent to N6 billion from N27 billion in 2018.
Its other income recorded a huge decline to N65 million in 2019 from the N2 billion it recorded in the previous year. This was majorly affected by the huge drop in its sale of property plant and equipment which earned N2 million in 2019 but N2.1 billion in 2018.
The company’s loss for the period stood at N4.2 billion marking a significant 142 percent decrease from the N10 billion profit recorded in the previous period.
“It is all about the shrinking consumer wallets,” said Iker Ibeabuchi, an analyst and manufacturer of chemicals.
“This is why the government has to focus on lifting Nigerians out of poverty,” he said.
Unilever liabilities reduced as it did not borrow or request loans in 2019, according to its financial statement. However, its assets declined to N107 billion in 2019 from N131 billion in 2018.
Following the federal government’s move to increase the VAT to 7.5 percent, analysts say manufacturing companies could incur higher costs, which will be passed on to the consumers in the form of price increases.
The company has appointed Carl Cruz as its new managing director effective 1st February 2020 and analysts expect that with his experience, the new leadership will reflect Unilever’s focus on strengthening its operational effectiveness and efficiency.
Giving an industry overview, United Capital’s consumer goods industry report says, “In all, while Nigeria’s market size is its biggest case for consumer companies to invest in the nation, weak consumer disposable income and high poverty rates have made the case for growth less compelling. Additionally, the country’s tough operating environment; decrepit infrastructures, porous borders, double-digit inflation and sluggish economic recovery, have further compounded sector players woes as they struggle to break-even.”
Analysts say product demand drives activities in the consumer goods sector. Therefore, the success of FMCGs heavily depends on the consumer purchasing power.
Since the country’s exit from the 2016 recession, consumer purchasing power has been constrained by poverty and unemployment. The country is world’s poverty capital and unemployment rate has risen from 18.8 percent to 23.1 percent since the third quarter of 2018.
Gbemi Faminu
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