During the initial nine months of 2023, a recent report from Meristem reveals that major fast-moving consumer goods companies, including Cadbury, Guinness Nigeria, and Nestle, incurred a total loss of N472.3 billion due to the depreciation of the naira.
The report highlights that the consumer goods sector, especially food and beverage manufacturers, faced significant challenges from a high inflation rate, which exerted pressure on production costs.
The document further emphasizes that the escalating costs of essential raw materials like grains, dairy, and meat have a direct impact on production.
Companies found themselves compelled to either absorb these increased expenses or transfer them to consumers by implementing higher prices.
The report read in part, “For the majority of companies in the consumer goods sector, which heavily rely on the importation of raw materials, the weakened Naira translated into significantly higher import bills, thereby leading to a substantial increase in production costs.
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“Moreover, companies holding foreign-currency-denominated debts, like Nigerian Breweries Plc, Nestle Nigeria Plc, and Guinness Nigeria Plc, Cadbury Nigeria Plc, faced higher debt burdens, more expensive letters of credit and substantial.
“This placed significant strain on the profitability of these industry players, leading a number of these players to report after-tax losses for both Q2:2023 and Q3:2023.
“As of 9M:2023, foreign exchange losses for major players in the industry stood at NGN472.35bn, further underscoring the magnitude of the challenge posed by the naira’s depreciation on the financial health of consumer goods companies.”
Nigeria experienced its highest inflation rates in more than 18 years, reaching 28.20 percent year-on-year as of November 2023.
The report highlighted that fundamental elements like consumer behavior, purchasing power, and spending patterns were significantly affected, imprinting a lasting impact on the overall dynamics of the industry.
It added, “Reflecting the broader macroeconomic terrain of the nation, the consumer goods sector has grappled with a host of pervasive challenges.
“These challenges range from foreign exchange shortages and the Naira devaluation, lower purchasing power of consumer due to the unabated inflationary pressures, the rising cost of commodities, amongst others.”
It was observed that despite encouraging indicators, such as expected price increases and strong sales during the festive season, there are several apprehensions that cloud the overall outlook.
The analysis also foresaw challenges for companies in terms of profitability, attributing this to the persistent inflation surge, ongoing depreciation of the naira, and difficulties in foreign exchange liquidity.
It read further, “Moving forward, into 2024, we anticipate more players in the industry to engage in business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging operating conditions in the Nigerian market.
“Despite ongoing struggles with rising costs due to inflation and substantial FX losses affecting their bottom line, we foresee consumer goods companies adapting their product categories to remain relevant and innovative, aiming to stay ahead of the curve in serving evolving consumer needs.”