Interview: CHIDI OKORO, THEO WILLIAMS AND GEORGE POLYMENAKOS
What is the biggest bottleneck facing fast-moving consumer goods (FMCG) production in Nigeria?
CHIDI OKORO: The biggest by far is access to shoppers. With a fragmented traditional trading channel structure, the cost of reaching retail outlets is high. This is exacerbated by the inadequate transportation system across roads and rivers. There is also the issue of electric power availability for controlled temperatures in transit, which is vital for dairy products. Actions taken include route-to-market revamp projects that adopt a hybrid model of direct-to-retail and indirect going through market wholesalers. For controlled-temperature items, the approach is to focus on channels with electric power availability.
THEO WILLIAMS: The biggest challenges for FMCG producers are: the inability to redistribute to rural areas due to bad roads; lack of social amenities; and advertising and running promotions to reach these diverse rural habitats and cultures. People engaging in business in rural areas only come to open markets to make purchases occasionally. Distribution to remote areas is difficult, especially if distributors or manufacturers are required to get their goods to those areas.
In Brazil there is a new distribution system. Boats go up the Amazon River selling products in very remote areas, even offering promotions and sales. Nigeria has the huge River Niger, which is enormously underutilised. This could be fundamental for FMCG companies in reaching out to customers. Indonesia is another example of a country whose distribution system is commendable. It has roughly the same population as Nigeria and is made up of thousands of islands. Nevertheless, distribution is far better there, as Nigeria’s system is underdeveloped.
GEORGE POLYMENAKOS: FMCG in Nigeria are not insulated from the volatile economic environment. There are challenges with energy, infrastructure, exchange rates, inflation rates and other macroeconomic indicators. However, the current administration is doing so much to develop infrastructure and improve the ease of doing business in the country, which is commendable. This is the sector that can jump-start the economy and create jobs for the teeming youth. I encourage the government to take more pragmatic steps and partner closely with the private sector to build a solid economic base. As the business environment becomes more clement, there will be more businesses wanting to invest in Nigeria, thereby bringing in foreign direct investment. I am particularly impressed with the drive for patronage of locally made goods. This strategy will stabilise the naira and bring down the cost of production.
In your opinions, how has consumer demand for FMCG evolved since 2015?
POLYMENAKOS: Consumers are very rational in their decision making and only put their money where they can get the best value for it. Usually, consumers react to the prevailing economic climate. With dwindling disposable income, especially in the developing markets, consumers are prioritising their needs, reacting to a number of factors. It is important for companies that want to survive the challenging business conditions to be able to retain a share of their consumers’ basket irrespective of the recession, through constantly fine-tuning their strategies to grow their consumer-centric portfolio. It is fundamental to listen to discerning consumers and to rethink practices to offer choices for all occasions.
WILLIAMS: In the last two years we have seen substantial changes. A downward trend started about 24 months ago, reaching the bottom some 12 months ago. However, in the last six months we have seen a slight improvement, not only in business confidence and sales, but also in the foreign exchange (FX) situation. At the same time, consumers were hit by the recession as jobs were lost and disposable income was erased. The pie represented by the 200m Nigerians does not increase, it stays the same size. With the negative economic situation the pie actually got smaller and tighter. Consumers have become more conscious of what they are buying, moving away from normal purchases to “must haves” only. For soft drinks that may mean a reduction in consumption or package size. All in all, we have witnessed a big change in the attitude of consumers. I am confident that there is a positive change in the macro environment of Nigeria. It is encouraging that a lot of people, working in fields from oil and gas to agriculture, slowed down their businesses to revitalise them. This will mean that more people will come back to the job market and the pie will get fatter.
OKORO: Consumer demand turned soft over the past two years following the slowdown in the economy and increasing unemployment. We have seen a shift towards lower-price items and more locally sourced items. Several FMCG companies reacted by reducing package sizes and reducing costs wherever possible. Consumers have reacted in different ways: some have started rationing, some look for smaller packages, while others are buying products in bulk as they are cheaper in the long run. With existing offerings, the frequency of consumption is down over 30% following price hikes. However, with the improvement in oil prices and the FX situation, we have seen positive developments, which are likely to continue in the next few months.
To what extent is there room to improve local sourcing of inputs for FMCG in Nigeria?
WILLIAMS: It would be beneficial to start canning and bottling here. Think of the knock-on effects. More jobs would be created, there would be cheaper products and a faster production time. These products would be available and affordable to a much larger share of the population. Of great importance too is the recycling business. Even just recycling plastic for bottling would create a large number of jobs, with people actively keeping the environment clean at the same time. Additionally, with more jobs more money would be pushed back into the system. This would create a serious trickle-up effect, pushing the government to intervene with the right legislation. Consequently, this will activate a trickle-down effect with several consequences, among them an increase of investment in the infrastructural sector. This would also impact on power generation, another significant concern. Import reduction and localisation is fundamental for FMCG companies to really thrive in Nigeria. Everything is interconnected.
OKORO: This is an opportunity that can be tapped into, but it needs time to be cultivated. With the right effort, focus and government policies we can source up to 35% of our inputs for FMCG. However, this would take an enormous set of resources and time to build up. Localisation should come with more effective formalisation in the sector. The large informal sector aids access to the emerging consumer class and it provides the opportunity for frequent purchases nearer to the homes of consumers. The formal sector is growing, but rather slowly. In this sense, a semi-formal/traditional model could be better developed to drive accessibility for lower-income groups, who are frequently buyers of FMCG products.
POLYMENAKOS: There is certainly room to improve local sourcing of inputs in FMCGs in Nigeria, through research and development to identify local alternative sources or substitutes for raw materials. Nigeria is blessed with an abundance of natural resources that could be harnessed to provide the critical inputs needed by manufacturers. The government should develop policies to encourage backwards integration in order to build local capacity that can satisfy the raw materials needs of Nigeria’s FMCG industries. This is one sure way of creating further employment for the youth, as well as enhancing skills transfer.
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