When customers tighten their belts, sales of consumer goods firms are under pressure. And in most cases profit slumps while margins are beaten down.
The coronvirus pandemic has forced people to stay at home and non-essential shops to remain closed, a double whammy for an industry beset by a myriad of challenges such as decrepit infrastructure, closure of borders, weak consumer spending, and unfavorable government regulations.
On 29 March 2020, President Mohammadu Buhari announced a number of measures to curtail the spread of Covid-19 in Nigeria. Notably, the President announced a 14-day (2 weeks) shutdown of economic and physical activities in two states (Lagos and Ogun States) as well as the Federal Capital Territory (Abuja). This was further extended by 14 days (2 Weeks) on Monday, 13 April 2020.
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But Analysts at Chapel Hill in a recent report said the shutdown is boon to Nestle Nigeria Plc and Flour Mills of Nigeria plc, as consumers are spending more on food-which is largely driven by stockpiling.
“Both companies have a diverse portfolio of brands that are considered as essential items by consumers,”said Abioal Gbemisola, analyst at Chapel Hill Denham Limited
The report also stated that Nestle Nigeria’s premium brand such as Maggi cube and cereals is ubiquitous.
With an operating cash flow of N49.94 billion as at December 2019, Nestle Nigeria has the financial strength to overcome the headwinds and funds future expansion plans.
Analysts at Chapel Hill Denham said that on the flip side, the restriction in human congregation in most parts of the country will affect the revenue and earnings of brewery companies such as Nigerian Breweries Plc (NB), Guinness Nigerian Plc (Guinness) and International Breweries Plc (Intbrew).
“This is because people can no longer go to bars or hotels as they used before the restrictions, and an extension of the lockdown could bring more pains to brewers,” said the analysts.
Brewers are the problem child of the consumer goods sector as weak sales volume and stringent excise duties have deal great blow on bottom lines.
For instance, International Breweries posted a loss of N9.13 to end 2019, as it is struggling with huge debts.
Home care companies such as Unilever and PZ Cussons are not spared the hammer of the economic crisis because consumers are increasing budgetary allocations to food expenditure.
Analysts fret that the disruption caused by the coronavirus pandemic couldtip the country into a recession unless government embarks on aggressive stimulus package that will help deflate the economy.
The International Monetary Fund (IMF) has predicted a negative Gross Domestic Product (GDP) of 3.4 percent for the country.
The Minister for Finance, Zanaib Ahmed, has already reduced the government’s projection of 2.10 million barrels a day of production to 1.70 million, and it working to Nigeria’s record $35bn budget for 2020.
Capitulating to pressure, the central bank devalued the official Naira rate to N360 to the dollar from N305.
The price of Brent crude fell below $20 per barrel for the first time in 18 years, sliding by more than a quarter on Tuesday as fears over demand caused by the coronavirus pandemic rattle oil markets for a second day. Brent was recently changing hands at $18.10, down $7.50, or 29 per cent, its lowest level since late 2001.
