More businesses in Nigeria, especially in the fast-moving consumer goods (FMCG) industry, are embracing ‘sachetisation’ as part of their strategies aimed at propping up demand amid rising inflationary pressures.
Sachetisation is a colloquial word for packaging of products into smaller sachets. It encourages the consumption of small units of products.
“People from low-income households might not have the opportunity to purchase a particular brand tagged as premium,” Damilola Adewale, a Lagos-based economic analyst, said.
He said now that companies have restructured their portfolio by doing sachetisation, it gives a sense of market penetration such that their products are now affordable to the larger and poorer segment of the economy.
“It is also a way that encourages small manufacturers to enter the FMCG market space to actually try and showcase their product offerings which is usually dominated by the big players such as Nestle and Unilever, etc.,” he said
Temitope Omosuyi, investment strategy analyst at Afrinvest Limited, said companies become profitable using the strategy as they are able to capture more income classes in the economy.
“The value chain of sachetisation will have a multiplier effect on the country’s gross domestic product. More production and buying of smaller units of items will automatically improve economic activities and consumption,” he said.
Sachetisation is not a new trend; it started in 2016, when the economy entered recession due to low oil prices, which led to weak foreign inflows, resulting in liquidity challenges in the country’s foreign exchange market.
The fallout from the COVID-19 pandemic in 2020, coupled with the Russia-Ukraine war this year, has worsened the liquidity challenges and price growth in the country. Inflation rate accelerated for the ninth consecutive month to 21.09 percent in October 2022, the highest in 17 years, from 15.60 percent in January, according to the National Bureau of Statistics (NBS).
The surge in inflation rate led to a 12 percent increase in household consumption expenditure to N27.3 trillion in the first half of 2022, the highest in five years, from N24.3 trillion in the corresponding period of 2021, according to the NBS.
The rising inflationary pressures also increased the cost of doing business, with salaries and wages for employees growing in the second quarter of 2022 at the slowest pace since Q3 2020.
According to the NBS, the salary growth fell to 3.93 percent in Q2 from 6.48 percent in the previous quarter.
This has squeezed consumers’ purchasing power, making many poorer. The multidimensional poverty index report released last month shows that 133 million people are poor in health, education and two other dimensions.
The poverty situation has worsened, making many people to not have the capacity to buy big things or packages, said Muda Yusuf, founder of the Centre for the Promotion of Private Enterprise.
“So, more and more of them are moving to these sachets, and if businesses want their products to be accessible, they have to come to their level,” Yusuf said.
He said if businesses target that segment of the market very well, they will be able to make sales and employ more people.
“That segment of the market is now a bigger chunk, particularly in the consumer products segment; so the more businesses go there, the more they will be able to prosper and create jobs.”
A consumer pulse survey report conducted in October by Pierrine Consulting, a specialist tech-first marketing research and strategy firm, revealed that when asked their expectations from brands, most of the respondents said they want products in smaller sizes at lower prices.
“Thirty-seven percent of them want brands to create smaller sizes at lower prices, 23 percent expect them to maintain quantity and maintain price, and 15 percent expect brands to reduce quantity and maintain price,” the report said.
Joyce Nwachukwu, commercial director at NielsenIQ West Africa, said consumers have reprioritised their intentions, especially when they want to shop. “It is one of the things that comes strongly where they are monitoring their basket spend.”
She said now that consumers are monitoring their spending, it is very important for businesses to realign themselves with the current trends, carefully understand the pressures and position themselves when it comes to price.
Source: norvanreports.com