What is really going on with the fast-moving consumer goods industry (FMCG)? A sector renowned for its history of generating reliable growth globally, so far this term, is falling way short of its standards.
Paraded as one of the world’s finest and most lucrative sectors, they made up 23 of the top 100 brands in the world in 2010. Last year in India, the sector grew by as much as 16%.
Fast-moving consumer goods comprise food, drinks and consumables such as groceries and beverages. Something that you would expect Nigeria has a colossal market for. Thus unsurprisingly, Nestle, Nigerian Breweries, Dangote Sugar, Cadbury, Nascon and Unilever (Big players) combined for a profit of N81.9 billion in 2021.
This sector makes “easy money” as some would say. Even when prices of goods are low, high volume of sales easily transforms turnover into revenues. Consequently, the industry is littered with new entrants, albeit fringe players. They still find a way to make the level of competition immense but interesting.
Like roses with thorns, the fast-moving consumer goods industry isn’t bereft of challenges. This time, too evident to ignore, it is starting to reflect on the bottom line.
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Substance and Clarity
Let’s look at Unilever Nigeria Plc’s report for substance and clarity.
Unilever is one of Nigeria’s premium companies noted for its sales of food products and home/personal care items. In its three months report ending June 2022, Profit declined to a paltry N110 million from N1.2 billion in the corresponding period of 2021.
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All decadence starts somewhere and FMCG is no different. Unilever’s moribund just like the other players in the industry has been slow and gradual. Recall, I mentioned earlier, that Nestle and Co, made a profit of N81.9 billion in 2021, it was N83 billion in 2020.
Furthermore, Unilever’s struggle with financing has been too obvious. Finance cost was N11 million in June 2021, N121 million in March 2022 and now N507 million as at June this year.
We witness this same rising pattern for selling and distribution expenses, marketing and administrative expenses and cost of sale. Increasing by over N6 billion between the three months period ending June 2021 and June 2022.
What has made the walls of this once robust sector crack so much?
Post-Covid, Frankly, Nigeria’s economic issues have been one too many. Inflation and instability of FX has made payment for importation difficult and expensive. Manufactures who locally source materials are fraught with insecurity and ridiculously high transportation cost.
To properly cripple any company in the fast-moving consumer goods sector, you best disrupt their distribution networks and alter production costs. These are exactly what this industry has contended this year. Suffice it to say, they are failing.
As the cost of doing business in Nigeria cripples this sector, the full impact is heaped on consumers. And because these companies must at the very least break even, inevitable rising prices have thus been a theme. Given the essential nature of these products, there is little consumers can do.
Government’s decision at the start of the year to slam excise-duty tax on carbonated drinks only exacerbated conditions.
Path to Progress
Will consumers bear this brunt forever?
How sustainable will these increasing product costs be for these businesses? One can only increase prices so much, given the sharpness of competition. Ease of free market entry also makes this an unwise venture in the long term.
The responsibility to improve conditions primarily lies with the government. Running costs like diesel prices should be controlled for starters. The Nigerian market environment has to be habitable for businesses to encourage investments.
It doesn’t end there, manufacturing companies must be strategic with production, advertising, operating expenses, etc.
For you and I, we may keep buying until we can no longer afford to because what other choice have we?