The sweet spots in Nigeria’s growing FMCG sector
Nigeria’s extremely large, youthful and increasingly urbanised population is helping to support a growing national fast moving consumer goods (FMCG) sector. Food, beer, soft drinks, personal care and home care are the primary categories of FMCG, and all of them burgeoning in this rapidly emerging, growing consumer nation, presenting attractive investment opportunities for businesses prepared to saddle the risks in light of the attendant rewards.
So what are the sweet spots in Nigeria’s FMCG that potential investors should look into? We explore below…
The Nigerian retail scene remains dominated by informal trade, although this is quickly starting to change with the entry of supermarkets and the increase in the number of shopping centres. The US Department of Agriculture (USDA) notes that the major traditional foodstuffs consumed by the majority of the population are predominantly unprocessed and/or semi-processed (including maize, sorghum, tubers and fish). However, changes that are occurring with regard to purchasing power, demographics, lifestyles and consumer preferences are resulting in increased demand for a wider range of products.
The most important supermarkets in Nigeria are Artee Group’s Park n Shop and Spar stores, and South Africa’s Shoprite. Artee Group is Spar’s partner in Nigeria, opening the first Spar store in the country in 2010. Artee Group has identified a further six sites for Spar supermarkets, and will also convert Park n Shop supermarkets to the Spar brand.
Meanwhile, Massmart launched a pilot food retail project in Lagos in February 2014, and depending on its success, the company may decide to open at least nine further stores in the country during the next two years. Massmart is setting up smaller shops – in contrast to its usual style – owing to the difficulty in getting access to large tracts of land in Africa. The store sizes are around 280 m2 with five employees, around 10% its usual size.
South Africa-based food retailer Shoprite entered the Nigerian market in 2005, and was slow to increase its number of shops. At present, the retailer has seven outlets in Nigeria. A lack of available sites has reportedly slowed the retailer’s expansion plans. Shoprite is in the process of adding a further 37 stores in Nigeria, although CEO Whitey Basson believes the country “could handle 600 to 800 stores”. Apart from a lack of available sites, the company is also being held back by the difficulty of importing products, and for this reason is looking to establish its own distribution centre in the country.
Gloo.ng is Nigeria’s biggest online supermarket, and it offers “100% free same day delivery” in certain areas surrounding Lagos, as well as a cash-on-delivery payment option. This is appealing as it saves the consumer time and circumvents the problem of limited formal retail outlets in the country.
Nigeria is Africa’s largest alcohol consumer according to Deutsche Bank Market Research. Based on sales of the world’s largest distiller – Diageo – on the continent, the country accounts for around 36% of Africa’s formal alcohol market.
The Nigerian beer industry has recently evolved from a duopoly to an oligopoly, with Heineken commanding a 71% share of the market through its two subsidiaries, Nigerian Breweries (61%) and Consolidated Breweries (10%). Diageo has a 27% market share through its stake in Guinness Nigeria, while SABMiller has recently entered the market and shown strong growth. Nigerian Breweries has the largest capacity (13.5 million hectolitres annually), followed by Guinness Nigeria (7.5 million hectolitres annually). According to figures released by Heineken, the Nigerian beer market is expected to record a compound annual growth rate of 5.6% between 2011 and 2020.
Despite the strong long-term outlook, the Nigerian beer industry is going through a tough period at present due to an increase in the cost of living, as well as distribution pressures stemming from security concerns. Research by Financial Derivatives Company, a diversified financial institution, indicates that the Nigerian beer industry contracted by about 10% between January and September 2013. In particular, the demand for premium and mainstream brands declined to the benefit of lower priced brands.
The value beer segment is currently the largest in the Nigerian market, accounting for around 25% of total consumption.
According to a September 2013 report by ARM Research, the fact that mainstream brands are performing poorly while economy brands are doing well is indicative “of a possible structural change in the Nigerian beer market as less affluent consumers switch to cheaper beer and more sophisticated drinkers (the primary target of mainstream brands) migrate to wine and spirits”.
Coca-Cola Nigeria Limited remains the dominant producer of carbonates and bottled water in Nigeria due to its long-established history in the country, strong distribution network, and aggressive marketing techniques. In turn, Chi Nigeria Limited leads Coca-Cola Nigeria Ltd in fruit/vegetable juice, with an off-trade market share of around 45%.
Competition is intensifying, with innovative domestic companies gaining market share, such as La Casera which recently introduced the first sugar-free carbonate with real fruit, namely Latina.
Rising health awareness among Nigerian consumers has resulted in particularly strong growth in the fruit/vegetable juices and bottled water categories. In addition, rising health awareness has bolstered demand for low-calorie carbonates. Consequently, manufacturers have responded to this general trend by developing new reduced sugar and sugar-free variants, as well as products that contain more natural ingredients.
The Nigerian personal care sector is dominated by international brand names. Key role players in the industry include Unilever Nigeria, PZ Cussons, Soulmate Industries, House of Tara International, MAC Cosmetics, and Sleek Nigeria.
According to Euromonitor International, mature personal care categories such as general purpose body care and lip gloss continued to grow rapidly in 2012. Even stronger growth was seen in developing categories such as shower gels, men’s deodorants, and women’s razors.
While demand for basic products is mainly expected to be driven by population growth, the other categories will rely on increases in disposable income. Hair care products are generally considered to be more essential than many other categories of personal care, and as such, it has performed well in Nigeria over the past decade, driven by the growing young working female population. Other factors that have supported the sector’s performance are the rise of the internet, and the growing number of Western-style shopping centres in the country.
The men’s grooming category is also expected to show rapid growth, though from a low base. Demand has increased as the availability of these products improved, which indicates that there was in effect a latent demand for beauty products for men.
Over time, the uptake of these products should increase on the back of income growth, the formalisation of the economy, the fast-growing youth population, and increased exposure to Western culture. The main role player in this category is Procter & Gamble with a 44% market share, mainly due to its popular Gillette products.
In the bath and shower division, PZ Cussons is the market leader with a share in sales of 30%. The company has built a strong distribution network in the country and has a number of popular brand names such as Joy, Imperial Leather, and Premier.
Unilever is the main player in this segment, with a market share of around 25%. The company’s products enjoy strong brand loyalty, and according to Euromonitor International, “the effectiveness of its distribution network is phenomenal”. Smaller domestic companies, including Eko Supreme Nigeria and Limex Global Industries, have shown strong growth on the back of affordable product offerings.
Growth in Nigeria’s home care sector is expected to be robust over the medium term, as consumers continue to switch from (cheaper) general substitutes to products that are task-specific (e.g. switching from using a bar of soap to clean various household items to using different products to fulfil different needs), in line with rising incomes. Other factors driving this market include urbanisation and increased home ownership.