IF IT FITS

Nigeria 2016 | INDUSTRY | FOCUS: FMCG

Nigeria is a fast-growing frontier for fast-moving consumer goods (FMCG) companies, and the youthful and growing population is acquiring an ever-growing appetite for packaged food.

Major MULTInationals such as Nestlé, Kellogg's, Unilever, and others have made significant investments in Nigeria in recent years. In the past three years, Unilever has spent almost $200 million in Nigeria, Nestlé has spent over $500 million in the last ten years, and Kellogg's has just spent $450 million for a 50% stake in Multipro, a Toloram Group-owned distribution firm that will push snacks and cereals across West Africa.

Noodles are a good example of the incredible potential of Nigeria's FMCG sector. In the 1990s, Nigerians ate almost no packaged noodles. Today, they consume 1.9 billion packages per year, and the noodles, commonly known as Indomie—the most popular brand is distributed by Dufil, another Toloram Group company—are available on almost every street corner in Lagos. There is still room for growth in the noodle market, and seemingly every food company is betting on it. Other manufacturers of noodles include Flour Mills, with its Golden Penny brand, Dangote Noodles, and various other local noodle brands.

Beer is another segment with high potential. Beverage producer Diageo, which has just raised its stake in Guinness Nigeria to 70%, sells more Guinness in Nigeria than in any other country. Heineken has also built its largest brewery outside of Europe in Nigeria, where its sales have consistently grown at 10% per year. SABMiller is also eyeing the Nigerian market, and recently released its Miller beer to the market with a large event involving lots of free beer. InBev has also just made an offer for SABMiller, in large part because of the latter's strength in frontier markets. Like noodles, per capita consumption is still low, at 10 liters per year, as opposed to 60 in South Africa.

In the short term, though, the outlook for FMCG firms is grim. They have been hit by violence in the north, which has cut off an entire swath of the country's population. The currency has depreciated significantly with the falling price of oil, which has hit earnings in an industry that must import vast quantities of goods. Stock prices of listed firms, including UACN, Flour Mills, and others have plummeted with the falling oil price, and recently the CBN has restricted access to Forex, which has left some firms unable to pay suppliers outside of the country. All of this has created “A year we would love to forget,” according to one CEO of a major multinational FMCG firm in Nigeria.

Despite very real concerns about macroeconomic trends and monetary policy, the Nigerian market seems set to grow in every category. In an interview with Roy Deepanjan, Managing Director of Chi Limited, a drinks company, spoke at length about the development of the drinks market. He explained that the tastes of the Nigerian market are evolving very quickly, and that even ten years ago few people consumed packaged fruit juices; they certainly do today. Last year, Chi, part of the TGI Group, was reported to be exploring options including a sale that would value it at over $1 billion. Since then, oil prices have tumbled, leaving Nigeria's economy in relative disarray, but the figure is large for a reason.

Although risks are still present, Nigeria's young and growing population is acquiring a taste for packaged foods. If the income of the average Nigerian rises, FMCG can count on an increasing portion of it going to products ranging from Maggi Cubes, to juice, beer, toothpaste, cereal, and soap. Yet with risk comes reward, and the Nigerian market is still youthful and growing quickly.