Manufacturers of fast-moving consumer goods (FMCG) are struggling with an increasing stockpile of unsold goods in their warehouses, a situation that is expected to lead to a significant decline in output levels in the sector. This issue is primarily driven by the rising cost of living and the declining purchasing power of citizens.
According to Financial Vanguard, the downturn in consumers’ disposable income led to a 27% year-on-year (YoY) increase in unsold goods for FMCG manufacturers during the financial year ending December 31, 2023. The sector’s operators anticipate that this situation will worsen in 2024, with an expected over 30% rise in unsold goods in the first quarter of the year (Q1’24).
As a result, output levels have been steadily decreasing since mid-last year. The Central Bank of Nigeria (CBN) reported that capacity utilization in the food and beverages sector fell from 61% in the corresponding period in 2022 to 49%, indicating a 20 percentage point decline. Over the past eighteen months, Nigerians have faced inflationary pressures that have significantly reduced consumers’ purchasing power.
The headline inflation rate rose to 28.82% in December 2023 from 21.34% in December 2022, driven by factors such as high energy costs and insecurity, particularly in farming communities. During the same period, food inflation surged to 33.93% from 23.75% a year earlier. This upward trend continued into 2024, with headline and food inflation reaching 33.69% and 40.53% in April, respectively, up from 29.90% and 35.41% at the beginning of the year.
The combination of high inflation and naira devaluation forced manufacturers to raise prices to cover high input costs. However, this measure has alienated many consumers, slowing down sales. Financial Vanguard’s analysis of the operations of 15 major FMCGs shows a burdensome price index, leading to an escalation in unsold goods amounting to N104.45 billion despite significant cuts in production.
The affected companies include BUA Foods Plc, Dangote Sugar Refinery Plc, Nestle Nigeria Plc, Presco Plc, Cadbury Nigeria Plc, Okomu Oil Nigeria Plc, NASCON Allied Industries Plc, May & Baker Nigeria Plc, Fidson Healthcare Plc, and Neimeth Pharmaceuticals Plc.