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Price-sensitive consumers shift spending lower to unlisted brand names – Coronation research

With an expanding urban population and increasing participation in the cash economy of Nigeria, one would expect rising sales of food and home & personal care (HPC) companies, however this has not been the case as consumers opt for prices commensurate with declining earnings, Coronation Merchant bank research has shown.

The report by Coronation Merchant Bank revealed that in inflation-adjusted term, however with the exception of Nestle, there has not been much growth in sales of food and HPC companies. Hence, against expectation the study revealed a fall in inflation-adjusted sales.
This is largely due to upward pressure on consumer price index (CPI) which has resulted to falling earnings of middle income earners in real terms coupled with downward pressure on private sector wages generally.

According to the research report, “We do not deny that Nigeria’s population is growing. As important, urbanisation has swelled the cities creating consumer concentration,” Coronation Merchant Bank stated, “the masses are not getting richer and unemployment has risen. There is a mass market but, critically, its price points have shifted downwards.”

As a result, falling earnings of consumers have seen a shift in purchase from the large listed players like Unilever, Flour Mills, and PZ Cussons, towards a number of low-cost, low-price point competitors and entrants.

Verifying this claim, the report noted that one of the unlisted group of companies reported nominal sales growth of 30 percent in 2018, far higher than any of the listed companies.
“It is only logical to conclude that established market shares of the principal listed companies are being eroded,” the report stated.

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Taking listed companies into perspective, Nestle Nigeria stood as the only listed company with worthwhile inflation-adjusted growth, hence outperforming other listed companies in the industry.

Result revealed that Nestle recorded an inflation-adjusted sales compound annual growth rate (CAGR) of 6.3 percent over the period, starting with calendar Q1 2011. Whereas taking four CAGR series (one each quarter) beginning in 2011, their average inflation-adjusted CAGR through to 2018 was 3.5 percent.

The inflation adjusted sales of Flourmill on the other hand was regarded as flat-to-negative. FMN experienced inflation-adjusted sales CAGR of -0.6 percent during the same period, starting with calendar Q1 2011.

Others include Unilever with an inflation-adjusted CAGR of -1.1 percent and PZ with a negative CAGR of 7.8 percent during the period respectively.

This scenario hence paints a “more people, not more money” picture. According to the report, the middle class individuals who are perceived to buy relatively expensive branded products from the listed companies seem to be affected also.

This in the view of Coronation Merchant Bank is the combined effects of the oil price shock of 2015, the currency devaluations of 2016 and 2017 and the recession of 2016/2017 which eroded both company and public finances, leading to salary falls in real terms.

The report noted that Nigeria is generating more people, more households and more consumers, however these economic agents are not getting any richer. While the last recession almost certainly left many people poorer than before coupled with slow economic recovery.

“We doubt that incomes, in inflation-adjusted terms, are rebounding, although the upcoming implementation of the N30,000 per month (US$83) minimum wage at the national level is likely to have a positive effect,” the report stated.

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By David Ibidapo

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