Vetiva: Price increases to sustain FMCG players revenue in H2'24

The consumer goods sector in Nigeria is poised to see sustained revenue growth in the latter half of 2024, despite facing challenges from high inflation rates. According to Vetiva Research's H2'24 Consumer Goods outlook, price increases are expected to be the key driver of revenue growth for Fast Moving Consumer Goods (FMCG) players in the country. Oluebube Nwosu, Consumer Goods Analyst at Vetiva Capital, discussed these insights in an interview with CNBC Africa. In the first quarter of the year, the food, beverage, and tobacco industry in Nigeria witnessed a growth of over 2 per cent. This growth was predominantly fueled by price increases within the sector, aligning with Vetiva Research's forecast of 2 to 3 per cent GDP growth for the year. Despite the challenging macroeconomic environment, consumer demand for essential goods remained strong, leading to price inelasticity where companies were able to pass on increased input costs to consumers. As a result, the overall revenue of the industry remained positive. The report highlighted a strategic shift in consumer preference towards more value, affordable, mainstream, and essential products. Companies in the FMCG space have adapted to these changing consumer trends by introducing value-based products, offering smaller sizes, and utilizing lower-cost inputs to cater to the increasing demand for budget-friendly options. This shift reflects a growing need for essential goods at accessible price points, especially as more consumers adjust their spending habits due to economic challenges. When discussing consumer priorities, Nwosu noted a decline in the emphasis on product quality, with consumers primarily focusing on the safety and functionality of the goods. In a market where prices have risen, consumers tend to prioritize affordability over premium quality, often making decisions based on price comparisons rather than brand loyalty. The shift towards budget-friendly options has become more prevalent, with consumers willing to compromise on certain features as long as the product meets their basic requirements. Looking ahead, the outlook for the manufacturing sector in Nigeria remains cautiously optimistic. Vetiva Research projects a modest 1-2% increase in GDP for the sector, with a slightly higher growth rate of 2-3% expected for the food, beverage, and tobacco industry. While manufacturers continue to grapple with cost pressures and price adjustments to maintain consumer interest, the overall stability in recent months suggests a moderate growth trajectory. Despite challenges in capital inflow and inflationary pressures, the sector is anticipated to navigate through the headwinds and sustain its performance in the near term. In terms of inflation, Vetiva Research forecasts an inflation rate of around 32% for the full year, with a potential deceleration in the upcoming months. The latest data hints at a slight pullback in inflation levels, paving the way for a more controlled inflationary environment. If the current stability in key economic indicators persists, the consumer goods sector, along with the broader manufacturing industry, could see a period of steady growth and resilience in the face of external pressures. In conclusion, the FMCG sector in Nigeria is expected to leverage price adjustments and strategic consumer insights to drive revenue growth in the second half of 2024. By aligning product offerings with evolving consumer preferences and maintaining a balance between cost efficiency and quality, companies within the sector are well-positioned to navigate the challenging economic landscape and capitalize on emerging opportunities for sustainable growth.