FMCG Industry Outlook in Nigeria
Fast Moving Consumer Goods (FMCGs) or consumer packaged goods (CPG) represent one of the largest industries in Nigeria. This industry consists of so many brands that have one thing in common: They are constantly searching to make sure they find the true consumer insights to keep their brand meaningful and relevant to consumers over time.
Nigeria has the largest consumer market in Africa, owing to its robust population and varying demography, the nation remains a fundamentally strong force in the FMCG space.
Before the FMCG sector started gaining traction companies/brands entering into the industry then were able to able to build brand loyalty, brand affinity and also influence consumer preference, and on the long run sharpen the market.
The Nigerian FMCG industry is very competitive with top players like Unilever Nigeria, Nigerian Breweries, Reckitt Benckiser, Dangote Group, Nestle Nigeria Plc., PZ Cussons, Dufil Prima Foods, and the list goes on.
All these brands have maintained a strong foothold in the industry and are continuously catering to the evolving needs of the Nigerian consumer.
How the FMCG Industry Has Experienced Growth Over Time
The expansion of the FMCG industry in Nigeria can be linked to a number of factors which includes, the growing income of the middle-class sector, urban expansion, and increasing health awareness among consumers.
All of these drives the demand for consumer packaged goods, and FMCG companies are also responding to consumer trends. The Fast-Moving Consumer Goods industry is estimated to be worth $38 billion by 2024, and market size is predicted to reach $23 billion by 2023, which shows a rapid and significant growth in the industry.
Fast-moving consumer goods companies have benefited from a surge in household consumption in the past few years, driven by shifting consumer behaviour and demand for food, essential products, and everything related to wellness and comfort.
The recent shift has translated to an increase in sales volume, revenue, and profits for key players in the industry.
FMCG Global Growth Rate and Spike in Inflation
Food is the biggest expense for most Nigerians, about 85 percent of household income is allocated for food-related expenses.
The food market outcome in revenue was predicted to generate US$191.40 billion in 2022, an annual rate growth of 8.68% between 2022 and 2027 (CAGR 2022-2027). Confectionery & Snacks account for the largest market segment within the food industry in 2022 with a market volume of US$45.08 billion.
From prediction, the global inflation rate was expected to rise from 4.7 percent in 2021 to 6.5 percent in 2023.
The Global inflation is feeding back into the African region and Nigeria is not an exception, the headline inflation rate in July 2022 was 19.64 percent with 2.27 percent higher on a year-on-year basis and in comparison to the rate recorded at 17.38 percent in July 2021.
Analysis from Trading Economics shows that inflation rate in Nigeria expedites for a sixth month (21.82, 21.91, 22.04, 22.22, 22.41, 22.79%) in the year 2023 from January – June.
How Nigeria’s Rising Inflation Affects Consumer Purchasing Power and the FMCG Sector
Consumers are facing the effects of the rising inflation numbers as there has been a consistent rise in the price of commodities over the years, which directly affects the purchasing power by limiting the amount of goods or services their money can buy.
Also, the shrink in disposable income is leaving consumers barely surviving and people having to let go of non-essential expenses. As a result of this consumers are now price sensitive, thereby prioritizing affordability over brand loyalty.
Major players in Nigeria’s FMCG industry are experiencing a rapid rise in production and distribution costs, be it in raw materials or supply chain networks due to the rise in inflation.
Some other challenges faced in this sector are – rising fuel prices, the Russia-Ukrainian war, and foreign exchange restrictions, especially for companies that rely on importation.
Restrictions on foreign exchange access by the Nigerian Central Bank have hampered the ability of some FMCGs to import necessary raw materials and equipment, which is now affecting productivity and causing an increase in production costs.
The Long-term Implication of Inflation
Manufacturers in this sector are faced with numerous challenges and the chief among them are the rising cost of fuel, the biting inflation, low level of power supply, the expensive cost of sourcing for raw materials, and the foreign exchange restrictions placed by the Central Bank of Nigeria.
To this, there should be cushioning effects by the government, to ease the burden on the FMCG sector, if not the implications will be that companies and investors will start exiting the country for more business-friendly environments, hence increasing the unemployment rate and causing low economic activity in the country.
On the part of the consumers, they will have limited purchasing power to buy essential goods, which will spell doom in revenue for Companies making it difficult for them to stay in business.
And in terms of tax repatriation for the government, there will be a decrease as companies will have limited resources to do so, overall the decrease in revenue for companies will also affect employees’ remuneration.