The Nigeria’s stunted economic growth that is squeezing the wallets of consumers is paving way for the ‘sachet economy’ to expand at a pace faster than the country’s GDP.
Survey by BusinessDay revealed that since the 2016 recession, Fast Moving Consumer Goods (FMCG) companies have been rolling out sachet products to enable them penetrate the larger low-income market which has been hit by the harsh contraction breeze.
“Nestlé introduced single serve packs as a strategy to ensure that consumers continue to have access to the nutritious food they need even in the current economic reality. This is in line with our purpose to enhance quality of life and contribute to a healthier future,” Victoria Uwadoka, Corporate Communications and Public Affairs Manager at Nestlé told BusinessDay.
Sachet products or single serve packs as they are normally called in the FMCG industry are products that can be used or consumed at once or for a single meal.
“According to our conversation with the companies and the market, the winning strategy is to play ‘cheap’. Given the nature of the current economy where consumer wallet is depressed,” Yinka Ademuwagun, Research Analyst, FMCGs, United Capital Plc told BusinessDay.
On the consumers’ side, they are happy to find small unit products that are affordable for them to consume without having to clean up all their income.
After all, the smaller size of the products does not affect the quality of the content, instead it gives low income earners the opportunity to have a taste of what only the rich would have ordinarily be able to consume.
Egbon, as he fondly called by his mates, Ayo Ogunleye, is a conductor who works with a bus on the Orile- Ojuelegba route. According to the middle age man, he would have to spend his two days salary for him to afford a bottle of whiskey.
“Since they introduced this sachet hot whiskey kind of drinks, I can buy as many as 5 a day, in total it cost me less than N500,” Ogunleye, told BusinessDay adding that he will “forever remain grateful to whoever came up with the idea to start producing sachet drinks.”
The five quarter recession which started in the first quarter of 2016, according to some distributors affected the performance of their big pack products in the market as the purchasing power of most Nigerians were eroded forcing them to increase their demand for smaller unit of products.
Nigeria economy has been growing sluggishly as GDP expanded by 2.01 percent in the three months through March from a year earlier; that compares with 2.4 percent expansion in the fourth quarter.
While inflation figure for the month of June fell to a 11 months low of 11.22 percent, the figure, however, falls below the central bank’s target range of 6 percent and 9 percent.
“This has been a long term trend. With the average Nigerian consumer facing stagnant income and higher commodity prices, it becomes imperative to provide some of these products in affordable smaller sizes. Thus, consumers buy what they need at a point in time as they make income,” Ayorinde Akinloye, a Lagos-based Research Analyst said.
According to data by the National Bureau of Statistics (NBS) as analysed by BusinessDay, Nigeria’s economic growth rate since 2015 has remained lower than the country’s population growth rate of 2.6 percent
On the impact the smaller packaging has had, Uwadoka said that “Nestlé has been able to retain consumer loyalty which is a strong contributor to the company’s business growth over the years.”
Hardly is there any FCMCG company that has not manufactured a single serve pack in Nigeria, BusinessDay survey has showed. From cooking ingredients, washing products to wine and soft drinks, there is now available unit of the products.
According to analysts, despite the effort and strategy by the FMCGs in Nigeria, their bottom line still remained depressed. This is as a result of the fact that most of the products manufactured in the country are not able to compete with imported or smuggled and unbranded products.
Of the firms on the Nigerian Stock Exchange 30- the list of the most liquid companies- consumer goods firms are more vulnerable to the macroeconomic headwinds.
The combined revenue of 10 largest firms quoted on the floor of the bourse dipped by 2.63 percent to N752.014 billion in June 2019 from N772.14 billion the previous year.
“The current macro environment is not business friendly, Most of the companies have to generate their own power, Bad roads for distribution, No matter how low they try to go the smuggled products will always beat them to price,” Ademuwagun said.
Dangote Sugar’s revenue fell by 4.15 percent to N80.36 billion in the period under review as smuggling and influx of cheap products continues to undermine earnings.
Dangote Flour Mills’ revenue’s sales reduced by 13.95 pecent to N48.74 billion in the under review as against N56.35 billion the previous year.
However, Nestle Nigeria’s sales increased by 5.05 percent to N141.91 billion in June 2019. The growth in Revenue has been largely driven by solid growth in Beverage business as the Milo RTD pack continues to gain widespread acceptance in the marketplace.
Golden Morn, Maggi Signature, Milo which has several smaller packs like Nescafe are some of the newest products repackaged by Nestlé into single serve pack.
Also, the revenue of Cadbury Nigeria increased by 10.96 percent to N19.45 billion in the period under review from N17.55 billion the previous year.
Endurance Okafor
