Nigeria’s leading research firm; Coronation Research has just released its 2019 Consumer Report titled, ‘Power to the Price Point. The report which presents an in-depth analysis of the Nigerian food & consumer industry from data garnered from a detailed market study is a radical re-interpretation of the developments in the industry and identifies the possible winners and losers in the sector.
In this report, Coronation Research asks the question: “if Nigeria’s population is growing at 2.6% per annum and the urban population is growing at 4.6% per annum, shouldn’t food and consumer product sales, in inflation-adjusted terms, be growing at between 2.6% and 4.6% per annum?”
They should, but the sales of the main listed food and consumer product companies, when adjusted for inflation, are not growing in line with Nigeria’s population figures. A close look at some of the players within the sector reveals Nestle Nigeria has shown positive inflation-adjusted growth over the past eight years, but the record for Flour Mills of Nigeria, Unilever Nigeria and PZ Cussons Nigeria is open to question.
One could then wonder, if Nigerian consumers are not buying the bulk of their food and consumer products from these companies, then who are they buying from, where, and at what prices? To answer these questions, Coronation Research devised a model household living on a modest income in Lagos and sent them shopping in outer Lagos. The shopping basket they brought back has not so pleasant news for the main listed companies.
In the shopping, baskets are products from an array of companies, most of them unlisted companies. Although Nestle Nigeria, Flour Mills of Nigeria, Unilever Nigeria and PZ Cussons Nigeria all feature, there are many more products from unlisted – generally smaller – companies.
EXECUTIVE SUMMARY
Growth Trends
Many years ago a number of international funds bought significant positions in listed food and HPC companies in Nigeria. Their aim was to profit from the rise of the Nigerian consumer, the biggest single sub-set of the African consumer.
By and large, the funds lost money and are much smaller now than they were seven or eight years ago. The listed food and HPC companies featured in this report, with the possible exception of Nestle Nigeria (Nestle), did not grow at the rates once forecast.
One early confusion was to equate nominal growth rates with US dollar growth rates. The key to sorting out this confusion is to adjust reported sales for inflation. Over the long term, the Naira/US dollar exchange rate tends to adjust for inflation differentials, so an inflation-adjusted sales record gives a reasonable reflection of equivalent US dollar sales. In inflation-adjusted terms, again with the exception of Nestle, there has not been much growth. In fact, most companies have seen inflation-adjusted sales fall.
Where the middle class went
The above conclusion would have seemed illogical, if not impossible, eight years ago. The African middle class was rising, particularly in populous Nigeria, and would supply the consumption for these companies to take off.
We do not deny that Nigeria’s population is growing. As important, urbanisation has swelled the cities creating consumer concentration. But, as we will show, the masses are not getting richer and unemployment has risen. There is a mass market but, critically, its price points have shifted downwards.
Meet the Ajayi’s – a working couple’s monthly budget
What do Nigerian consumers buy, and where? To answer this question we conducted primary research. Mr. and Mrs. Ajayi are a young couple earning salaries which we frequently see advertised in Lagos. They spend 40% of their disposable income on transport and 10% on rent.
This leaves less than N30,000 (US$83) per month for groceries. They eat well but are picky when they shop. They do not visit supermarkets but buy exclusively from market vendors. What they bring home (via our office) includes just a few products from the listed companies featured in this report.
Competition price points and market share
What we found in the Ajayis’ shopping basket surprised us. Most of the branded goods (only 30% of their shopping basket by value are branded goods) are made by unlisted Nigerian manufacturers whose products are highly competitive on quality and price. Some of these goods are made by long-established companies like Boulos, Olam and Tolaram, none of them listed in Nigeria. But some of the goods are made by companies founded in Nigeria within the last 20 years, like Limex and Daraju.
Add to the above list products in their shopping basket made by another unlisted company, Royal Salt, and there is a lot of competition for the established listed companies. The Ajayis did bring back some products from Nestle Nigeria, Flour Mills of Nigeria, Unilever Nigeria and PZ Cussons Nigeria, but not many.
The energy and momentum in the food and HPC industry appear to have shifted away from the large listed players towards a number of low-cost, low-price point competitors and entrants. One of these unlisted groups reported nominal sales growth of 30% in 2018 – far higher than any of the listed companies featured here – and guides to 16% growth for 2019. It is only logical to conclude that established market shares of the principal listed companies are being eroded.’
Download the 2019 Nigeria Consumer Report: Power to the price point here
