Price sensitive consumers shift spending to unlisted brand names

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The harsh and unpredictable macroeconomic environment have forced consumers to opt for cheaper unlisted brand names over food and personal care (HPC) as they their earnings continues to decline. 

A report by Coronation Merchant Bank revealed that in inflation-adjusted term, with the exception of Nestle, there has not been much growth in sales of food and HPC companies.

This is largely due to upward pressure on consumer price index (CPI) which has resulted in falling earnings of middle-income earners in real terms coupled with downward pressure on private sector wages generally.

According to the research report, “We do not deny that Nigeria’s population is growing. As important, urbanisation has swelled the cities creating consumer concentration,” Coronation Merchant Bank stated, “the masses are not getting richer and unemployment has risen. There is a mass market but, critically, its price points have shifted downwards.”

The shrinking consumers’ wallet has seen a shift from the purchase of large listed players such as Unilever, Flour Mills, and PZ Cussons, towards a number of low-cost, low-price point competitors and new entrants.

The report noted that one of the unlisted group of companies reported nominal sales growth of 30 percent in 2018, far higher than any of the listed companies.

“It is only logical to conclude that established market shares of the principal listed companies are being eroded,” the report stated.

Taking listed companies into perspective, Nestle Nigeria stood as the only listed company with worthwhile inflation-adjusted growth, hence, outperforming other listed companies in the industry.

Result revealed that Nestle recorded an inflation-adjusted sales compound annual growth rate (CAGR) of 6.3 percent over the period, starting with calendar Q1 2011. Whereas taking four CAGR series (one each quarter) beginning in 2011, their average inflation-adjusted CAGR through to 2018 was 3.5 percent. The CAGR is the rate of return of an investment over a certain period of time.

The inflation-adjusted sales of Flourmill, on the other hand, was regarded as flat-to-negative. FMN experienced inflation-adjusted sales CAGR of -0.6 percent during the same period, starting with calendar Q1 2011.

Others include Unilever with an inflation-adjusted CAGR of -1.1 percent and PZ with a negative CAGR of 7.8 percent during the period respectively.

This scenario hence paints a “more people, not more money” picture. According to the report, the middle-class individuals who are perceived to buy relatively expensive branded products from the listed companies seem to be affected also.

This in the view of Coronation Merchant Bank is the combined effects of the oil price shock of 2015, the currency devaluations of 2016 and 2017 and the recession of 2016/2017 which eroded both company and public finances, leading to salary fall in real terms.

The report noted that Nigeria’s population is growing, hence more households and consumers, however, these economic agents are not getting any richer. While the last recession almost certainly left many people poorer than before coupled with slow economic recovery.

“We doubt that incomes, in inflation-adjusted terms, are rebounding, although the upcoming implementation of the N30,000 per month (US$83) minimum wage at the national level is likely to have a positive effect,” the report stated.

 

OLUFIKAYO OWOEYE & DAVID IBIDAPO

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