Consumer goods firms in Africa’s largest economy have seen sales grow at a slower pace for the first time in two years as they cut price of products to compensate for lower patronage from consumers.
A trend analysis of the first quarter (Q1) results of the 15 largest listed firms in the industry shows cumulative sales increased by 8.59 percent to N948.97 billion from N874.42 billion the previous year.
This compares with an increase of 29.63 percent in the corresponding periods of Q1, 2017 and 24.82 percent in Q1, 2016 when rising production costs brought on by a sudden drop in oil price and FX squeeze forced them to pass on such high costs to consumers in form of increase in price of products.
“Demand has not been strong as expected and a lot firms had to do a little price cut,” said Olalekan Olabode, head of research team at Vetiva Capital Limited.
“But expectation is that volumes will be stronger because election spending will boost consumer wallets,” said Olabode.
A breakdown of the figures shows Dangote Sugar’s sales dipped by 30.69 percent to N41.39 billion in March 2018 from N59.52 billion the previous year.
This compares with the 82.50 percent increase in the 2017 period, 44.84 percent increase in 2016.
Nigerian Breweries’ (NB) revenue fell by 9.89 percent to N82.96 billion in March 2018 from N91.68 percent the previous year (2017).
This compares with a 17.70 percent and 10.91 percent increases in sales in the corresponding periods of 2017 and 2016.
Dangote Flour’s sales reduced by 8.39 percent to N26.29 billion in March 2018 from N29.04 billion the previous year.
“In 2008, we have not seen much price increase by some of these firms. The flour millers have kept their prices stable in 2018. The price increase across board was implemented since 2016,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham.
To substantiate Ibrahim’s views, the last time Q1 sales growth were in single digits was in the first quarter of 2015 before the decision to jerk up prices, based on data compiled by BusinessDay.
While sales of firms are growing at a slower pace, they have been able to curtail raw material costs as they aggressively sourced locally to fend off the effect of rising inflation and severe dollar scarcity on margins. NB plans to increase sourcing of raw materials like sorghum, Food Grade Starch and others locally from 57 to 60 per cent by 2020.
PZ Cussons has invested $300 million in backward integration projects so far across the country, according to Christos Giannopoulos, managing director/CEO.
Giannopoulos said, most of PZ’s inputs are sourced locally; pointing out that the FMCG firm now sources calcium carbonate, which is a key input, from the northern part of Nigeria.
Northern Nigeria Flour Mills has invested N2 billion in a new sorghum plant in Kano with a view to reducing the cost of sourcing wheat for its operations.
Analysts are of the view that the recession of 2016 forced manufacturers to think out the box and come out with new ways of reducing exposure to systematic risk. Indeed the strategy has paid off as the cumulative cost of sales of the 15 firms increased by a low 8.69 percent to N724.25 billion in March 2018 from N662.37 billion the previous year, compared with 32.34 percent and 18.85 percent increases in the 2017 and 2016 periods.
The improvement in foreign exchange availability due to the introduction of the new exchange window by the central Bank, lower raw material prices at the international market combined with availability of gas supply at factories also helped firms curtail costs.
NB, Dangote Sugar, Dangote Flour, and Champions Breweries recorded a reduction in cost of sales.
BALA AUGIE
